There is more sniping and backbiting in the financial world. For example, some doubt has emerged over whether the world’s economy can decouple from the US.
European Central Bank official Christian Noyce said earlier this week, “We are currently seeing deterioration in business and consumer surveys in the euro area, although from very high levels. This may put a question mark over our hopes that Europe could ‘decouple’ its cyclical evolution from the evolution of financial markets and uncertainties in the US outlook.”
He’s not saying that Europe needs American customers, although that’s probably true. He is saying Europe’s financial markets are tied to the American markets. This shouldn’t come as too much of a surprise. After all, it was the European banks who bought all the subprime garbage sold by Goldman Sachs (NYSE:GS).
Still, the “decoupling” explanation says the world’s economy can survive the stumble, recover, decline, fall, and bankruptcy of the American consumer. But Damien Boey of Credit Suisse says that, “If US consumption were to really come off, we could see world growth go through a sub-trend rate and that would be consistent with lower commodity prices.”
“We don't think overall that China can completely de-couple from the US but we don't think the US is going to send China down into a major downward spiral at this stage,” he added. “In the long term, we're looking at a world where growth will be a little bit slower than what we've seen in the past - and that's something that people need to start pricing in.”
What about the longer long term? Steve Pearlstein writes in the Washington Post that the world reminds him of 1929, but not quite as dire, or with as many flappers and gin martinis.
“We are only at the beginning of the financial world coming to its senses after the bursting of the biggest credit bubble the world has seen. Everyone seems to acknowledge now that there will be lots of mortgage foreclosures and that house prices will fall nationally for the first time since the Great Depression. Some lenders and hedge funds have failed, while some banks have taken painful write-offs and fired executives. There's even a growing recognition that a recession is over the horizon.”
Dan Denning
The Daily Reckoning Australia
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About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). He began his financial publishing career in 1997 and has covered financial markets form Baltimore, Paris, London and, beginning in 2005 Melbourne. He’s the editor of The Daily Reckoning Australia and the Publisher of Port Phillip Publishing.
Comment by Coffee Addict on 6 December 2007:
I try to pick painfully between the lines to make any sense of what any spokesperson from a bank has to say. I assume they would be fired unabiguously airing a true opinion about the current state of the markets.
Mr Noyce is trying to say that a European recession is inevitable. Mr Boey is trying to day that commodity prices are going to take a significant hit.
Comment by christina on 6 December 2007:
Hey, here's a poem I read once, maybe they should make it the new national anthem of America:
"That money talks they can't deny
They heard it once, it said goodbye"
Comment by christina on 6 December 2007:
Winston Churchill once said:
"The further back into history you look, the further into the future you can see"
How very true that is. Everything that is happening to our world now happened in the 1920's and 1930's too. We're not the first generation to have affluenza. If you read old stuff from the 1920's you'll see that they had it too, just as bad as out generation. Maybe the politicians should all start reading history books instead of economics books, Im sure they would find heaps of answers