[CAMWEST-discuss] Coming global financial crisis
danny_hannan at yahoo.com
Mon Mar 14 10:33:45 UTC 2011
Some would say more doom and gloom but I say because you have knowledge you have
more opportunities to do better.
The Global Economic situation has taken a turn for the worse.
Portugal, Ireland and Greece are all in the situation that they cannot generate
enough income to make the interest payments on their debts. This means that
they will either default or at least some of their debt will be written off.
This is likely to happen within about two years.
The European banks that are holding that debt do not have enough reserves,
without financial collapse, to be able to either have those countries default on
their repayments or to write off the total debt, the pragmatic solution is a
partial write off of the debt and hope the countries can repay the reduced
Spainand Italy are also in financial distress but these two economies are each
large enough to collapse the European banks by themselves if they were to
default on repayments.
All these European countries must import most of their energy commodities, coal,
oil and gas. With the political upheavals in Northern Africa and the Middle
East that are at least partly caused by high food prices due to high
agricultural commodity prices. Most of these countries are unable to produce
enough food for their people and must import grain etc. Near record crops yields
world wide are required to bring grain inventories up to normal and prices
down. The rising global demand for energy is putting pressure on energy prices
and all these countries are facing increased costs for their necessary fossil
fuel imports putting further pressure on their budgets.
With the increased risk of a disruption to the supply of oil, the price of oil
is unlikely to trade much below US$100/barrel this year and upwards of
US$120/barrel is well within probable. Those prices are going to put a downward
pressure on global economic growth at the rate of about 0.5% GDP for each
Japan with its monstrous debt and now the earth quake and tsunami but in
particular the disruption to nuclear power will mean that Japan must import
increased fossil fuels to supply the necessary power to its industries. All of
these disasters are going to put increase pressure on Japan’s budget.
The austerity measures in the UK may mean that they will eventually recover from
their debt. But it will take many years maybe a decade or so.
While the debt and the unmentioned unfunded liabilities of the USA are mind
boggling in size and scope their position of holding the global reserve currency
of US dollars means they can just print more dollars and that is what they are
doing at a great rate. This is not a real solution but only a stalling tactic,
kicking the cans down the road. Eventually there will be so many cans that the
road will be blocked.
The triggers or the straw that breaks the camel’s back will be energy short
supply and high energy prices, particularly oil. Oil production capacity for up
to ten years in advance is quite predicable and shortages of supply are forecast
by several different authorities for 2012 and increasingly after 2014.
In addition there are a number of issues also happening about 2012 that have the
potential to also overload the poor camel with much more than a mere straw.
1. Particularly US, but also European and UK residential property mortgage
defaults are forecast to peak in the second half of 2011.
2. Commercial property refinancing again particularly in the US but also in
the UK and Europe has a peak in 2012 but the valuations are down some 40% on the
2007 valuations when the mortgages were written.
3. During the GFC of 2009 many countries, states, local governments and
companies across the world issued 3 year bonds to stay liquid. Causing a large
peak of maturing bonds for 2012. Those bonds need to be paid out, reissued or
the final option is default.
4. There are debt issues that also mature in 2012 along with the scheduled
changing of the ruling party leadership in China.
If you don’t think this is looking like a perfect economic storm for 2012 then
its business as usual.
If like me you are a little worried then make preparations.
· Reduce or payout any debt.
· Move your superannuation to a capital-guarded/guaranteed fund.
· Cash assets that will lose value by using the 2008 GFC as a
· Move to more secure employment.
Australian real-estate prices are estimated by some economists to be up to 56%
over valued, will another GFC cause a real-estate price correction/crash?
danny_hannan at yahoo.com
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