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Wednesday, June 20, 2012

Why Doesn't The Stock Market Reflect The Imminent Global Depression? - Business Insider

man great depression 

We seem to be heading towards an economic downturn equivalent to the Great Depression of the 1930s.
This isn't a secret. The synthesis below is derived from: Lawrence SummersNouriel RoubiniSimon JohnsonNiall Ferguson, and Paul Krugman to name just a few. This crisis is not happening quickly.
It's more of a slow-motion train wreck—Greece's crisis started in 2009. But that leaves a puzzle—why is the American stock market not reacting to obvious warning signs?
Greece and Spain already have unemployment rates exceeding 20 percent. If that isn't a depression, what is?
Greece is in very deep trouble. Spain (the Euro's fourth largest economy) just needed a $125 billion bank bailout. The weaker economies (Portugal, Ireland, Italy, Greece, Spain) face severe credit crunches as local banks lose deposits (withdrawn because of credit concerns and fear of forced devaluations following a Euro exit).
Serious discussion is already taking place about the demise of the Euro, or even worse the break-up of the European common market—in which case unemployment rates across Europe will exceed 20 percent. National incomes will decline sharply, resulting in large-scale corporate insolvencies, with the crisis spilling over into the U.S. and Asia.
Arguably, the Germans have a sufficiently healthy economy to avert the crisis. But they are reluctant to act—without clear structural changes in the European Union/member states to prevent future problems. Amidst a crisis, it's difficult to make structural changes quickly. The Germans (with some legitimacy) fear that a bailout lacking agreement on structural changes will result in some combination of a larger financial disaster later, and/or the German economy permanently subsidizing some of the weaker economies.
Europe's economies provide little reason for optimism.
The U.S. faces a recession next year if the Budget Control Act takes effect, which is likely if Obama wins and partisan gridlock continues. House Speaker Boehner already announced that if Obama's re-elected, the GOP will treat us to another debt ceiling confrontation. If Romney wins, the Democrats (having learnt their lesson from the Republicans) would be as disruptive as possible. If the U.S. faces a major economic crisis triggered by the Euro's collapse, bipartisan consensus on how to resolve it is unlikely.
China's growth model may be reaching its limit. If the rest of the world's problem is too much ideology, China's is arguably the absence of any ideology except kleptocracy. China lacks a functioning legal system. Its officials are disciplined by shadowy communist party entities, rather than accountable to a transparent legal system. Nominally ruling in the name of the proletarian vanguard, China is governed by princelings and kleptocrats, with friction escalating among the kleptocrats.
Internationally, another regional war appears increasingly likely in the Middle East....

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