I didn't go shopping today. And I don't plan on do so at all this weekend. I'm not going to be shopping at all this holiday season at Walmart. I won't be shopping at Target either, as one diarist here recommended yesterday. And I won't be buying from Amazon as another diarist suggested just this morning. I am not going to "do" Christmas this year at all. No presents. I can't afford it, and more importantly...I'm quite afraid that we are all on the verge of another economic "event" that may make the last one seem like a practice scrimmage. It's not just Europe, though things there are looking grim; there's shit going on in all over the place. None of it is good. And it largely goes unreported here in the U.S. One can only consume so much news, and after 20 minutes of Kim Kardashian's 72 day marriage, 10 year old boys getting buggered in the Penn State showers, and the latest punditry upon which GOP candidate committed the most egregious debate gaffe, there's little time left to delve into anything else of much substance.
Last August (an eternity ago?) Goldman Sachs published a semi-private report for distribution to hedge fund managers in which they summarized their view of the finacial underpinnings of the global economy by saying "The world is going to Hell in a hand basket." http://www.businessinsider.com/...
Just today, Barclays Capital in London has released a 48 page report of their own, entitled "Things Are Getting (Even) Worse."
http://www.forbes.com/...
But don't be too alarmed, KMart Shoppers...for the next 15 minutes there's a blue light special on king sized bath towells. Just 3 for a dollar.
Portugal's sovereign debt has just been down graded by both Moody's and Fitch to junk status. There are huge numbers of angry protestors in the streets of Lisbon as a result of the austerity measures being forced upon them, joined by military leaders of the revolution in 1974 that restored democracy to the country after years of dictatorship. The talk in the central plaza is reminiscent of those times, with some of the former military leaders suggesting that a new revolution may be required to throw off the "dictatorship" of international financial markets. Portugal is right now experiencing a massive general strike that has shut down Lisbon, halting mass transit, train service, and flights to the airport. Factories all over the country have been shut down. Marchers carry signs that say 'Spain, Greece, Ireland & Portugal...our struggle is international!' or 'Let the Bankers Pay'.
Italy today conducted a bond offering that has been declared in all of the European press a disaster. Their bond yields rose precipitously over the course of the day, and ended up at a 14 year high, doubling their cost of borrowing just like that. Even Germany, the strongest member of the Eurozone, had a shockingly poor bond offering 2 days ago, with investors unwilling to purchase almost a third of the bonds offered.
Hungary's sovereign debt, like Portugal's, has been downgraded to junk status. Spanish voters just ousted the Socialist Party and voted the Conservatives back into power, just as Americans lurch back and forth between the GOP and the Democrats. Protesters in that country have become so disillusioned and cynical with their political system that people, in the runup to elections, were using marking pens to scrawl "ballot box" on public toilet seats and lavatory drains. There were public cries to cut out the middle man in the electoral process, and to deposit ballots directly into bank ATM machines. Such is the mood in the streets of Madrid. Their incoming Prime Minister is expected to seek international financial help to manage the countries debt burden.
According to a Eurozone official deeply involved in the efforts to formulation a solution to the financial crisis there:
"We are not far from a point when the disruption in the markets is so big that monetary policy transmission does not work at all. If the ECB has the assurance that we are moving towards a fiscal union, they could be ready to go all out, (but) We need a reply that is clear and credible if we are to avoid the worst"
Therein lies the problem. European leaders are far from providing markets any clear message that such a fiscal union is in the offing soon. Like the two parties here in the U.S., Germany, France, the UK and others have shown themselves incapable of agreeing on a solution to the crisis and who should shoulder the costs. The market forces are moving rapidly, yet democratic governments are mired in debate, conflict, uncertainty. They are unable to keep pace, let alone stay ahead of events.
Next week there is another round of bond offerings from other countries in the Eurozone, and no one knows what to expect from those auctions. Borrowing costs keep going up, and austerity measures are causing economic growth to falter as unemployment rates go up. Europe is on the cusp of a slipping into what could be a severe recession.
Japan doesn't get talked about much, but it too is mired in severe debt problems. Unlike most countries, however, most of Japan's sovereign debt is held by domestic, Japanese banks. But according to the Wall Street Journal
Japan's public liabilities amount to roughly twice annual economic output—a ratio worse than that of any other industrialized economy, including turmoil-hit Spain and Italy. he International Monetary Fund warned in a new report that market concerns over fiscal sustainability could trigger a "sudden spike" in Japanese government bond yields that could quickly render the nation's debt unsustainable as well as shake the global economy.
http://online.wsj.com/...
That article goes on to note that should Japan's bond yields spike, as they are now in Europe, it would likely have to cut off foreign lending, immediately crimping several economies like South Korea and the U.K.
All of this malaise is already impacting China. Largely unreported here, China is seeing major labor unrest right now. Huge, sometimes violent strikes have been taking place in China's most important manufacturing province. Workers in the thousands have shut down several large factories, setting fires, overturning cars, in protests against their wages being cut even as food inflation and housing costs eat away at their incomes. Factory orders from Europe and the U.S have already declined as a result of the stagnant economy to the point that Chinese factory owners are cutting wages, eliminating overtime and other measures in an attempt to shore up their profits. The social unrest in the country is at a fast simmer, and it's hard to predict what a major recessionary downturn in the West could produce there.
I'm no economist. Not by a long shot. But I try to read the news that seems important to me, and to digest it and comprehend it as best I can. Back in the early Spring I was predicting that the U.S. would slip back into a double dip recession by the end of this year. It looks like that probably is a little too soon. But I still see it as probable in 2012, and perhaps in the first quarter. When I look at the gridlock in Europe in the face of their financial crisis, and the political gridlock here as we struggle with ours...the only parties that can seemingly act quickly are the financial players. Our economic fates will be written by them, not by our political leaders.
And the writing is already on the wall. As Barclays said, Things are getting even worse.