All Posts Tagged With: "crisis"

Sunday will be the day Germany pays its final reparations for the conflict which began in 1914. Bond holders under the Treaty of Versailles will receive their final payment and it will all be over. A small milestone for the revered austerian herself, Chancellor Angela Merkel, in paying off Germany’s debts.

A crucial time is approaching for the global economy and stock markets. The policy induced ‘recovery’ from the credit crisis is now petering out. While this inevitability was hardly consensus opinion months ago, most market participants are now coming around to the viewpoint that the developed world faces a low growth future.

Japan was the world’s most admired economy in the ’80s. Then it was the world’s most despised economy in the ’90s. By 1995, economists pointed their fingers and laughed – the world’s most admired businessman had lost his left shoe. But now, much of the world is barefoot.

You’ll recall that when we left off last week, Ben Bernanke assured the world that while the recovery was not exactly what he had hoped for, he nevertheless had the situation in hand. He said he had the tools necessary to fix the problem and would do whatever was required.

Unemployment compensation doesn’t really reduce people’s desire to find work – not when there are 5 applicants for every job. Still, adjustments need to be made…and not having any money coming in the door is bound to be a motivator to make them. The real reason people are unemployed is that the price of labor is too high.

The combination of falling earnings and falling P/Es does to stock prices approximately what the Romans did to Carthage in the third Punic War. That’s why we have our Crash Alert flag flying. Stock prices delenda est. Typically, depressions come with bear markets. And bear markets come with bounces and rallies. We expected an O! Bama! bounce after the election. We got one…but much less than we expected. Stocks only rallied about 15%…

For us, here at The Daily Reckoning, the crisis comes as no surprise. Heck, we saw it coming years ago. Of course, even we didn’t think it would hit so hard… and so wide. We thought Japan, for example, would be spared.

In the last few weeks, it has become clear that the current financial meltdown is not our usual, run-of-the-mill crisis. It’s supersized, inexorably linked to the rest of the world, ruled by chaos, and precariously perched atop a mountain of debt. “What makes this crisis different from some of the earlier ones,” says IMF Historian James Boughton, “is that the interlinkages among financial institutions are much greater now than they used to be.”