Albert Edwards says this has nothing to do with that downgrade
The simple fact is that the global economy is falling back into recession or indeed is already in recession. Equity markets were sliding before the downgrade and bond yields were reacting as one would have expected to the dire economic data. The S&P downgrade may have caused the breach of critical support levels of 1250 on the S&P, but anything could have caused that breach and triggered the technical rout. Expect some sort of retest of this neckline before the market ultimately meets its date with destiny.
Recent US GDP revisions revealed QE2 to be an abject failure as far as producing an economic recovery is concerned with dire 0.9% annualised growth reported in H1 2011. Yet to a man with a hammer, everything is a nail. Hence despite rising core inflation, there is certainly a level of economic and/or market pain to prompt QE3. But expect the real fireworks to occur when the adrenalin rush of QE3 wears off even quicker than QE2.
There are still some diehard ‘happy clappies’ out there who think we are going to avert recession and the markets will recover. Yet US GDP growth has now fallen below the wellknown 2% stall speed, below which the economy does not seem to be able to regain altitude but instead crashes directly into recession.
…
We are now entering the third phase of the Ice Age when another cyclical failure combines with a secular de-rating of equities and re-rating of government bonds. I and many others have been pointing out for a long time now the simple fact that the global economy has been living way beyond its means for years. A massive transfer of income to the very rich has occurred while middle class real incomes stagnated. The middle classes only tolerated this because Central Bankers created housing booms to keep the impoverished middle classes borrowing and spending to give them the illusion of prosperity and stop them from revolting.
I believe the Fed and Bank of England, in particular, were wholly complicit in this daylight robbery (see link). These unsustainable private sector, debt mountains were transferred to the public sector in 2008 to prevent the adjustment to the depression-era reality that the debt unwind would undoubtedly have brought about. Yet, those debts are as unsustainable in the hands of the public sector as they were in the private sector.
…
Central bank polices haven’t changed though. Print and print and print. And if that doesn’t work, print some more. And as London burns, the point I have always made is that the US and UK are not like Japan in one very special way. Although Japan suffered a decade of pain it is a very homogenous, equal society. The UK and US are not. Some readers may not know that rioting and looting has broken out around London. While I hear the UK politicians denounce the looters as common criminals (which of course they are), I can’t help but think that Louis XVI in 1789 and Tsar Nicolas II in 1917 might have said the same thing.
- Hussman Weekly Market Comment: Leap Of Faith
Economists know that there are three ways to deleverage an economy: austerity – where debt growth is held below the rate of economic growth; restructuring – where bad debts are written down or renegotiated; and monetization – where money is printed...
- The Gutenberg Economy - By Michael Lewitt
Adam Smith is spoken of as the father of modern laissez faire capitalism, as well he should be. But the market system Smith described in The Wealth of Nations (1776) no longer exists. Instead, it has morphed into a system of fiat money that owes its existence...
- Hoisington Q4 2011 Letter
High Debt Leads to Recession As the U.S. economy enters 2012, the gross government debt to GDP ratio stands near 100% (Chart 1). Nominal GDP in the fourth quarter was an estimated $15.3 trillion, approximately equal to debt outstanding by the federal...
- Albert Edwards: Europe Is On The Edge Of A Deflationary Precipice That Will, Paradoxically, Usher In 20-30% Inflation
Via Zero Hedge: Amid all the recent euro-related turbulence, the markets have not focused enough attention on the rapidly vanishing core CPI inflation rates in the US and eurozone. With both moving below 1%, we are now only one cyclical mishap from joining...
- Protecting Your Income
The global economy still isn't back on its own feet as central banks are continuing to prop up the economy by printing more money. It seems like for the past few years all you've heard on the financial news is how the economy could slip into...