Hold your hats folks as here are some of the forecasts for 2009 (link):
- GDP falling by 2.2%
- Slow recovery in 2010
- > 9% unemployment by 2010
- Decline in inflation (hmmmm… if monetary policy says anything this will reverse or at least eventually destroy the dollar)
- Continued decline in housing prices
- Decline in real consumption of more than 1%
- Indeterminate on the financial system
And the best of all
$1.2 trillion dollar budget deficit for 2009*
*That doesn’t include the proposed stimulus package
*That amounts to 8.3% of GDP
So, we have an economy in decline, and digging a deeper and deeper hole to climb out of. What I really want to know is how are we going to pay for 1) a 1.2T dollar deficit, and 2) a large fiscal stimulus package of a indeterminate size.
Let’s see our foreign friends have been purchasing our debt, which enabled us to essentially live off of their productive labor. China for example is seeing a marjor reduction in exports, its economy is contracting, and eventually it is going to have to decide if it is worth supporting the American lifestyle at their own expense. Presently, everyone is so intertwined I think there is a fear that if one jumps the house of cards falls down and we all lose. However, is it possible for say China to pull out of the house of cards with minimal damage? Is there a way they can reduce their exposure to US debt, and not have their savings collapse? This is something I’d really like to know.
Seems to me that if they slowly shift some of their dollar reserves into commodities and other currencies SLOWLY, especially when there is increased demand they will be able to lessen their exposure. The US import market is tanking, and has been tanking. With unemployment increasing Bloomberg people are going to have a smaller income and will be forces to save thus hurting exporting countries. This isn’t a US phenomena alone as Europe and frankly the rest of the world is contracting simultaneously, while being fed a mouthful of credit from central banks to re-inflate the bubble. Last I checked it is very difficult to inflate a popped bubble.
Let’s take the latest number from Taiwan Bloomberg. Their exports dropped by a record 41.9%. We all know that Taiwan exports electronics, which have been a major boon ever since the technological revolution, which also saw a major hiccuup in 2000-2003. So, this is confirmation of a major exporting taking a major hit. There will be ramifications for the Taiwanese economy.
I can’t imagine that after the dust settles the world’s economies will look the same. The sea of money will shift to where is sees the most opportunity and in its movement will tear apart the economies of many.
Here are a few more headlines on Bloomberg alone that tell a um telling story:
Fed Revives Discussion of Inflation Target to Counter Risk of Price Slide
ECB Expanded Balance Sheet by 36 Percent Last Year to Revive Bank Lending
Apartment Rents Fall, Vacancies Rise to Four-Year High on U.S. Job Losses
Shopping Center Vacancies in U.S. Approach 10-Year High as Stores Fail
Procter & Gamble Fights to Refinance as U.S. Borrowings Reach $2 Trillion
U.S. Banks Will Need to Raise More Cash in 2009, Meredith Whitney Writes
I’ll leave it at that, but what I’m seeing is RECESSION coupled with the Fed trying to stave it off through any means necessary, which is now including outright purchases of securities on the open markets. Again we have no savings and are either monetizing debt or borrowing it from somewhere. To do this will be disastrous to the dollar and our reputation as a solid financial center of the world. Sure there are plenty of other economies in dire situations, but in the end who will come out with the heads up high and who will come out still in the sand?
