Global Economy and the Financial System on the Cliff’s Edge?

11 Mar

The illusion of economic stability convinced most people that the great economic crisis of 2008 was exceeded. The truth is that it’s just beginning, and the next wave of crisis is very close. Europe is experiencing economic depression and is only a matter of time before the U.S. will follow.

Unemployment rate at high alert

20120731_EUYouthUnemployment_0Published last Friday, this index shows a new historic high in the euro area unemployment rate: 11.9%. In Italy it rose to peak last 21 years, while in Greece reached 27%. More worrying is the unemployment rate among young people under 25 years: in Greece and Spain is close to 60% and in Italy and Portugal is 40%.

Jobs crisis is a direct consequence of the global crisis of 2008 and may generate a political crisis. In general for each unemployed person three people have to suffer. For the euro area the real test is not the debt crisis, but how to avoid the consequences of high unemployment.

Social movements are becoming increasingly popular

Last Sunday was reported the largest protest in the history of Portugal, with hundreds of thousands of unhappy people on the streets of Lisbon. Elections in Italy, France and Greece and surveys in the euro area show that people reject the austerity measures and the European Union. Austerity is consequence of the recession, because there will be less money available for services and goods.

Complaints and destabilizing movements increases the popularity of extremists and the chances of a new political party to represent the unemployed and lower class rises.

We are witnessing an unprecedented bubble

zDow Jones this week exceeded the historical peak from 2007, under the most modest economic recovery after a recession.

Central Banks fueled rising prices pumping liquidity increases in the system, realize that if you blow another bubble” this will be followed by another “Crash”. Meanwhile investors still benefit, ensuring that they will sell everything before the others. Those who know the inside information as usually are the biggest beneficiaries: the ratio of shares sold shares purchased on Wall Street by employees of large corporations is 9.2 to 1.

Debt talk

Italy’s debt increased in 2013 to 127% of GDP, the highest level since 1924, when Mussolini came to power. In the U.S., the total debt per capita reached $ 185,000, double compared to 2008 while income per capita in January recorded the largest monthly decline in the last 20 years. A record 47.7 million Americans receive food supplements worth of $ 135 per month, and in the first two months of the year over 1 million people whose incomes fell below what the state considers poverty have entered the social assistance program.

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Euro zone and UK are already in recession. Surprisingly, U.S. economic growth was negative in the last quarter and only 1.5% in 2012 well below the 4% expected by the Federal Reserve. Throughout the history every annualized economic growth so low eventually led to recession. Analyzing statistical data from previous years, a GDP below 2% is a warning.

From currency war to commercial war

China announced this weekend through an official voice that its ready for a currency war, in response to the neutral reaction of G20 members against forced devaluation of Yen.

Japan is accused of trying to create an advantage in Asian export markets. According to the statement, China is fully prepared to fight back against monetary policies implemented by foreign central banks. China’s foreign exchange reserves increased by 700% from 2004 to present enough to buy twice the entire gold reserves of all central banks in the world.

Meanwhile peace in Europe depends on the union of Germany and France: the first wants the ECB to export as much to support and control inflation , while France wants central banks to stimulate the economy to reduce unemployment.

Last week was incredible with dollar reaching the maximum of last 30 months while Dow Jones exceeded historical highs. Yes, historical, despite divergence from fundamentals, we are witnessing a TEMPORARY decorelation against the dollar. The main role of the dollar is the SAFE HEAVEN, which tends to appreciate in moments of panic (risk aversion) and in moments of optimism weakens (appetite for risk / speculative interest). Moreover, the volatility index VIX is at a minimum point close to the post Lehman. Therefore, under this circumstances one of this two trends will fall. Will be the Dollar? Will be indices?

What to expect this week.

The economic calendar shows no major risk events indicators that can play the role of catalysts. Thus influencing factors remain the same: the market reaction after Friday‘s NFP and ECB meeting on Thursday, political uncertainties in the region, and so on. RISK remains at high levels and the sell off could be triggered at any time.

Source: admiralmarkets

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