Europe? Japan? Emerging Markets?
20 Minutes, 30 Slides
In Part I of this three part series John & Gord takes us an around the globe review in assessing what is most likely to blow up first. There was no shortage of troubling destinations!
Europe?
It is clear that Europe is headed fro yet another recession unless the ECB adopts its version of Quantitative Easing - FAST! The Bundesbank's surprising capitulation on ECB sterilization is indicative of the seriousness of the accelerating problem.
Japan?
Japan h as been running huge public sector deficits for two decades and now has more debt as a percent of GDP - 220% - than any other major country. Possibly more than any major country ever. Japan then decided in 2013 to inflate away its debt by forcing the Bank of Japan to engineer an inflation rate of at least two percent.
ABE-NOMICS is not working:
- Growth is slowing
- Trade deficit high and rising
- 43% of this year's federal budget will be borrowed
- Debt-service will consume 24% of federal budget
IMPLICATIONS: A currency crisis waiting to happen.
Emerging Markets - Sub-Prime Countries?
Hot money from developed world debt monetization caused asset bubbles and excessive borrowing in India, Thailand, Turkey, Brazil, etc. Now the how money is flowing back out, removing support from artificially-inflated asset prices. Emerging market currencies plunged, forcing most of them to impose capital controls and/or raise interest rates.
Brazil's overnight rate now 10.5%, Turkey's 12.5%. Emerging markets are the sub-prime borrowers of this cycle, the first to lose access to cheap credit in a crisis.
Developed world banks are on the hook for hundreds of billions to these countries. If they implode, it will be another "Lehman Moment," forcing the Fed, ECB and BOJ to choose between bailing out everyone in sight or presiding over the death of the global financial system.
Globalization Trap
Gord additionally illustrates how these scenarios fit within the work conducted at GordonTLong.com regarding the GLOBALIZATION TRAP outlined in their Free Thesis 2014 report.
- Part 1 - Europe, Japan & Emerging Markets
- Part 2 - China
- Part 3 - The Wealth Confiscation Shock Wave
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