Is it just me, or does the world economy seemed to be in suspended animation–a butterfly pinned to the corkboard? Or perhaps a weightless astronaut at the apex of a parabolic rocket shot?
The much-ballyhooed restocking effect finally showed up in the Q4 GDP report, but all was not well in other areas: notably consumption, whose growth delined on a quarterly basis. Where is the final demand coming from? Build it and they will come?
An then there is Greece and Spain and Japan and Ireland and the UK and…how will any of them avoid outright default or the printing press? The overly subscribed Greek debt issue was completely underwater in the span of two days, as spreads continued to widen. Buyers’ remorse indeed. How long until catastrophe?
And then Obama’s call for doubling exports in five years. How will that be possible without a dramatic weakening of the dollar against the people’s currency?
Big changes are brewing. Don’t look down.
Given its centrally administered economy, who knows. But the latest real estate market statistics suggest a bust cannot be too far off. According to NPR:
- Chinese property sales rose 75% in 2009
- The price of a new apartment in Shanghai is up 68% year on year
- 85% of Chinese cannot afford to buy properties
Of course, “not everyone is convinced there is a property bubble”.
The next ten years will be perilous. As much as it did the Aughts, one word will define the Teens: volatility. In my opinion there are three large risks to the world economy over the next ten years:
- Cascading currency crises
- Cascading sovereign defaults
- Geopolitical conflict
These risks are all interrelated, so the likelihood that one occurs and the others do not is slim. The sad fact of the matter is that as we enter the Teens, we have no comprehensive way to deal with the debt overhang that is now plaguing the public sector. Of course, a private sector that wasn’t overleveraged could conceivably shoulder the load and grow the economy by leveraging up and relieving the strain on the public sector. Alas, we are all tapped out.
I personally expect that quantitative easing will continue intermittently (causing great volatility in the process) until some currency or government blows sky high. Then the real fun begins.