Two horsemen of the apocalypse appear
Posted on 31 July 2011 with 6 comments from readers
Two horsemen of the biblical apocalypse have appeared among us: faltering US GDP growth and a freezing up of Italian and Spanish interbank lending.
In the second quarter US GDP growth slowed to 1.3 per cent against expectations just two months ago of 3.3 per cent growth. The recovery was running out of steam even before the end of QE2.
Another recession?
Worse still the first-quarter figure was revised down from 1.9 per cent to just 0.36 per cent. Clearly the US economic recovery is in big trouble in 2011. Usually if year-on-year growth dips below two per cent a recession follows.
Then there is the freezing up of interbank lending in Spain and Italy. This is an ominous development reminiscent of the post-Lehman collapse global economic crisis.
Italian and Spanish sovereign debt yields have soared over the past week. At the same time US money market funds are pulling back from eurozone commercial bonds leaving the banks with a shortage of funding and dollars.
The European Central Bank is not the Federal Reserve and does not have the resources to deal with a major crisis and the Fed has indicated that Congress is unlikely to accept help outside the US on the scale of 2008. Thus the dollar will surge against the euro.
If we are looking for a third and fourth horsemen to complete this vision of doom then Japan and China are also none too healthy either. John Mauldin has Japan as a ‘bug in search of a windshield’ with a 50 per cent devaluation of the yen against the dollar probable.
China crisis?
The all-important Chinese economy is also overheating and being ignored as a potential disaster waiting to happen, as Chris Mayer argued last week in Vancouver where John Mauldin also spoke. That would be a huge problem for commodity prices.
So will all four horsemen soon ride forth and bring the global economy to its knees with part two of the global financial crisis? It increasingly looks as if the focus on the US debt ceiling drama is missing the real event.
There is another global financial storm brewing up and about to break out.
6 Comments posted by readers:
@ Peter:
Pleased to see that you had a great time at the 4 day Vancouver Agora Financial Symposium; I’ve followed it closely, and have read much of what these guys had to say. Quite noteworthy, including the discussions at the whiskey bar!
RE: 4 “Horsemen”:
The Ed. identified two strong candidates as “Horsemen of the Apocalypse”, and two potential candidates.
I suggest that there are other “dark-horse” candidates (no pun intended!) that could be added to the “potential” category. What about:
1. The Broken Global Monetary System (REF: Edwin Vieira)
or
2. Dangers of a New and Bigger QE (caused by a faltering US economy)
A bigger and long lasting QE could act as a catalyst for inflation and increased interest rates, at a most inopportune time!
I’m sure there’s additional dark-horse candidates out there!
Yes.
In fact,there is a third horseman of apocalypse in the room,but almost nobody saw him (or almost nobody wanted to see him).The third rider of doom was the collapse of the municipal bond market (munis) in november and december last year.I don’t understand why the financial media just ignored it.
Armed radicals in pick-up trucks invaded a city in southeastern EGYPT and exchanged gunfire with police. Supporters of The Brotherhood demanded an Islamic state during a large demonstration in the Egyptian capital of Cairo. Lebanon is being filled with tens-of-thousands of rockets and GUIDED missiles from a nearby power.
And I always thought India and Pakistan would be the first use of nukes. Wrong again?
No tax increases in the USA budget deal! Watch what the Federal deficit is NEXT year with the slowing economy. They will NEED that debt limit increase.
Chinese authorities are toying around with a little less press censorship after the train crash. Japan has run high speed trains for 47 years. How many fatal wrecks did the Japanese have during all those millions of trips? Zero.
@ Belphe: Good point.
In addition to the 2 I identified above, here’s a few more:
1. Perhaps the Most Obvious Candidate, Total Derivatives:
The total amount of derivatives are now over $ 1 quadrillion, with tons upon tons of counter-party risk!
2. Perhaps not so Obvious Candidate:Israel-Iran war:
Obewon, perhaps it would be more accurate to state number 2 as being the Zionism-Iran war.