Recovery, what recovery!
Posted on 24 September 2009 with no comments from readers
The G20 leaders meet today in a self-congratulatory mood convinced that a recovery has started in the global economy. But the reality is that the world economy has slumped this year and is at best bouncing along the bottom. Recovery? This is no recovery.
A recovery would mean year-on-year growth, and there is no such thing. The World Trade Organization estimates global trade will be down 11 per cent this year. Consumer spending and lending to consumers has fallen dramatically.
No recovery
To say that the slump might have hit a bottom (and we really can not be sure on that either) is not the same as a recovery. A recovery means that we are on the way back to the trade and retail sales volumes of a year ago. That has not happened.
Indeed, not all global leaders are wildly optimistic. IMF chief Dominique Strauss-Kahn put it neatly yesterday in a prepared statement: ‘The crisis is not over, but I hope the worst is now behind us. We seem to have averted a disaster.’
These are carefully chosen words. The IMF has some ‘hope’ and thinks we ’seem’ to have missed a disaster, but agrees the crisis is not over.
My contention is simply this: the disaster has already occurred. We already have the worst slump in global trade since the 1930s. We already have a hugely indebted financial system only operating on government life support. We have a private sector collapse.
There is no easy way out. Defaulting on these debts would collapse the financial system. Too much money printing will do the same thing.
Political pressure
It is therefore a little premature for politicians to start calling an end to the crisis. Indeed, such loose talk has already fueled up a colossal bubble in stock market prices that threatens to burst at any moment.
No stock market bubble of present proportions has ever not ended in a crash. This is the next stage in the crisis.
A careerist politician like G20 chairman Gordon Brown is the same man who ran up British house prices successfully to become Prime Minister, so perhaps to expect more than misleading hype from him with an election coming up is just too much.
But investors should not be deluded into thinking that they are missing out on a rally which is a bear market trap. Watch out below unless you really trust the people who got us into this mess to get us out.
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TOKYO (AP) — Japan’s exports tumbled 36 percent in August — with car shipments falling by half — and imports also contracted sharply, the government said Thursday, showing the world’s No. 2 economy remains mired in a deep slump.
Declines in automobile and steel exports were especially pronounced, the Ministry of Finance said. Exports fell for the 11th straight month to 4.5 trillion yen ($49 billion).
“We are not seeing an improvement in exports due to a continued slump in global demand,” said Hiroshi Watanabe, an economist at Daiwa Institute of Research. “Japan’s exports were particularly hit hard by stagnant demand in Asia and China.”
Imports, meanwhile, dropped 41.3 percent from a year earlier to 4.3 trillion yen, reflecting weak consumption within Japan, where the jobless rate is at a record high as companies shed workers. Consumer finance company Aiful Corp. said Thursday it will cut 2,000 jobs, or about 44 percent of its work force.