Is the End Game In Play?

Sunday, June 21, 2015
By Paul Martin

David Chapman
Sunday, 21 June 2015

Watch out! That is what the headline said on the cover of the latest edition of The Economist (June 13-19, 2015). The world is not ready for the next recession. The Economist went on to declare “the fight against financial chaos and deflation is won”….the IMF says, for the first time since 2007 every advanced economy will expand…. Growth should exceed 2% for the first time since 2010….and (the Fed) is likely to raise rock-bottom interest rates.”

Well that is the forecast of the IMF. The Economist doesn’t seem to be quite as optimistic as even their 2015 forecast is suggesting GDP growth of 2.3% for the US, 0.8% for Japan, 1.8% for Canada and 1.5% for the Euro zone. That seems a bit shy of 2% for the rich world. At least The Economist admitted there remains risk from the “Greek debt saga” to “China’s shaky markets”. But one of the big problems is that six years following the biggest financial crisis since the Great Depression the global economy is at best muddling along while the risks appear to be rising not falling.

Take Greece as an example. There are many who believe that Greece is not much of a problem given that they only represent roughly 2% of the Euro zone economy. On the other hand, there are many who believe that a Greek default could represent a Lehman Brothers moment for the Euro zone. If there is a difference the collapse of Lehman Brothers in September 2008 came as a shock to the market while the potential for a Greek default has been “in the headlines” for months. On the other hand, someone, most likely the ECB, the Bundesbank, or the IMF could be left holding worthless Greece debt. It is believed that the EU banks are no longer exposed to Greece. What is unknown is whether the collapse of Greece could spread to other countries (contagion).

The Rest…HERE

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