Where's the global economy going?

[Micah 16]

Housing bust. Credit crunch. High oil prices. The middle class is shrinking. Saudi Arabia and other international banks are sending billions to American banks to try to help them. Presidental candidates are creating billion-dollar proposals to stimulate the economy.

These are the headlines I see and hear everywhere, everyday.

Is this only an American problem? From what I've been told, there have been considerable problems in Europe with people lining up at banks. 

Are we going towards a global recession? a depression? If it only occurs in America, would it affect other markets around the world? Edit: Is all this hype actually real? Is this the media trying to scare us? What are your thoughts?

*No specific article*

[Psycho_Teddy 25]

Good idea for a topic, hal.

While I don't know much about international economics, I do know that the American economy needs a big change, and soon.  I don't think that the media is trying to hype us up, this is a very big, and apparent problem.

Here are the facts:

Unemployment is going up

Foreclosures are skyrocketing, and are at record rates in some places (my hometown, for example)

Inflation is increasing

National Debt is flirting with $10,000,000,000,000 (thanks to Mr. Bush and his War of Terror)

Gas/Health costs are rising

And, finally, the stock market is not showing anything indicating otherwise.

[Barbarossa 51]

.

  Edited September 7, 2012 by Barbarossa  

[The_Dalai_Llama 15]

America has really had a lot of prosperity over the past 15 years so a recession is no surprise to me. The Middle East conflicts, Venezuela and Nigeria occasionally causing a ruckus, and the American dollar dropping like a stone aren't helping matters, either.

Depression talks, however? That's going a bit too far at this point... but the media can't help themselves sometimes.

[BurroDiablo 222]

I remember that small house price crash the US had a few months ago... it was funny watching the TV Estate Agents lose their head over the whole thing. Seems like we're gonna have the CEO's of Mutinationals begging on TV soon 'Please spend money! Please please spend your money! We need your money! Spend!!!!'... yeah, ok... maybe if you raised my salary! Remember kids, if you don't buy things, the Terrorists win...

[NYankees24 0]

I don't know, but I think a depression might be around the corner, because the stock market reflects the fear that is starting to grip the world, and people act on fear maybe a bit too predictably and a bit too much.

[Frankie_Grove 32]

The US economy is still growing, the worlds economy is just growing faster, and the US economy cannot keep pace. Sure, some states are faring better than others, but overall, growth still occurs. I believe this issue has been heavily dramatized by the media.

[coolotter88 2]

now the last thing we need a nutjob president to make us buy everything using gold bricks.

[patriots_1228 51]

I blame whoever was the president when we bought cheap oil from saudi arabia and then sold it behind their backs.

[belfastuniguy 18]

It's a very VERY complicated picture.

On one hand we have America suffered serious problems as a result or poor lending decisions and major banks having to write off billions. In addition to having to borrow from other countries.

You also have this effecting the European and British economy, not to the same extend but it is affecting us. Northern Rock, a British Bank is very close to being nationalised. Now that sounds like the economy is in free fall,but it's not. The value of British housing stock is over 4 trillion while the debt secured against it is about 1 trillion, so we have massive positive equity. The world economy is just slowing slightly.

On the other hand we have China, India and a small collection of western nations still experiencing tremendous economic development and growth.

The world economy in general is developing well, America is a major economy but it has started to slow and slow badly, it is no longer as competitive and the dollar is in a mess at the minute. I DO NOT predict a recession anywhere important just yet. The sub-prime market will continue to prove problematic for American banks in the coming months and it will impact heavily on commercial and personal lending as such dampening the driving force behind the US economy - consumer spending.

[beebs 129]

North of the 49th parallel, things are going just peachy. I think that any talk of a global depression is just the media trying to sell papers.

[maddogmark25 58]

This is a very interesting topic for me, as I have just begun an economics geography class for the semester, and we have started with the global economy, more specifically globalization.

Globalization has done many things, but it is slowly but surely eroding away the middle class of America. The big problem is the outsourcing of jobs to China; higher paying jobs are being taken away from blue-collar Americans that would cost companies on average around 8 - 10 dollars/hour, and sending them to countries such as Taiwan, China, Thailand, the Middle East, etc, where wages average around 50 cents/hour. Combine that with jobs being lost because workers are being replaced by machines and computers that do the same job, but for a lower cost. The gap between the rich and poor is widening at a critical rate, and the majority of people are falling towards the poor side.

You may see statistics that mention an increase of, say, 300,000 jobs in the past month. The problem with this is that a vast majority of these jobs are minimum wage-type jobs, or part-time jobs. They are not jobs that require skilled laborers, and that can pay these workers sufficient wages. All of those jobs are being outsourced. With the meteoric rise in inflation over the past year, this is causing people to have to work even harder to make ends meet. A great example is the eastern Pennsylvania clothing industry. 100 years ago, this was a booming industry that was creating new jobs left and right, and rivaling the growth of the steel industry of western PA. However, in the past 30 years, the major companies have been outsourcing their jobs, to be able to pay less to their workers to make a bigger profit. In essence, the rich get richer, and the poor get poorer. It should say something when the workers of your companies (for example, Nike shoes) cannot even afford the very product they are making.

and belfastuniguy, I do predict some form of a recession in the next 6 months to 1 year. A report is coming out in the next month, and from what is being said, it is a report with a grim outlook

[Meg 368]

That's a nice way of saying the manufacturing in the USA is going away and isn't coming back any time soon, regardless of what the politicians say.   The companies will go to countries where there is cheaper labor.   The US middle class will continue to shrink until things balance out.

Thing is, they can't "balance out".  The only way for that to happen is for people worldwide to consume goods at the same rate as Americans.  And there aren't enough resources for that to happen at the current population levels.  So the American standard of living will continue to decline for the next few generations.

[Jasoncw 11,949]

I'm not an economist, but from my understanding, there's a bad mix of economical characteristics right now that are bad news for the future.

And things aren't all that great right now.  I don't think it's hard to believe that things will get worse.

Also, we've always had occasional depressions anyway.  You only ever hear about the Great Depression, but there were other depressions before it.

So I think that something bad will happen, but I'm confident that America will bite the bullet and make it through like we always have, if it happens.

[deadwoods 542]

America (USA anyway) is going into recession. That has a flow on effect to other countries that are tied commerically to the US, but doesn't mean the world is going into recession. The papers are saying that the Australian Stock Market has lost approx. 130 billion AUD this week, but then the Australian economy is strong at the moment so we'll ride out the US problems. There was a good article in one paper today weighing up the pro's and con's of the US troubles. One observation was that the currently weak US dollar makes US products cheaper to buy against foreign products, so US citizens are more likely to buy locally made goods rather than imports and that has a flow on to jobs and boosts the economy.

[MrFingers 0]

I wrote about this earlier:

As you probably know, there is a large amount of money currently being lost in the credit markets and specifically the sub-prime mortgages. I thought some of you might be interested in the reason why this is happening from an Austrian perspective.

You might have seen people blaming the money lenders for making stupid loans. That criticism is partly right, the loans are stupid, but it's not the money lenders who are to blame. The money lenders make these risky loans because the price of borrowing money was cheap and there was a large enough spread that it was worth the risk. And why was the money so cheap to borrow? Because the central banks set artificial interest rates. If you set artificial interest rates, you set a false price on borrowing money, and thus give misinformation to the market place. That is why the mal-investments were made, money lenders would not have taken the risk had the money not been cheap, and thus the potential profits so large. The trade-cycle directly stems from this. An economic "boom" is often, and almost always at least partly, because the central banks flood the markets with cheap money that gives a false illusion of prosperity. An economic "bust" is simply the re-liquidation of that badly invested money. Usually the central banks try to fix this problem by reinflating the money supply yet again which simply builds more bad investment on top and distracts people with the illusion of prosperity again. The only way to fix it is to let the bad investment liquidate. If we see the metaphorical economic house of cards come down in the next year or two, it would not surprise me in the least.

A post note on the English bank run;

This is because the banks do not hold 100% reserves for their deposits. It's basically warehouse fraud, again enabled by the erosion of our banking system by crooks. People realise that their money in the bank has been lent out ten times over to other people and rush to withdraw theirs before anyone else. The bank quite literally doesn't have your money anymore. As I said, it's fraud, but you will always see people defend this system, either because that's all they know or because of political manipulation. So what the government did was bail out the company to the tune of... i think

[A Nonny Moose 8,262]

Well, if I lived in the United States, I'd be a little worried.  I don't think your government can act fast enough to head off the R-word.  They might be able to stop any thoughts of the D-word.

Our fiscal institutions in Canada can react very quickly.  Not too many of our big banks were involved in the below-prime mortgage bubble, which has now burst.  Those investments were in the U.S.

We are protected from bank failures by the provisions of the Bank of Canada act.  The government would have to become insolvent for this to be a problem.  We have been having Budget surpluses over the last few years, and deficit financing is not in our current vocabulary.

I am afraid that a crash in the manufacturing sector in the U.S. will have dire implications for us unless we can pick up the slack.  Well, nature abhors a vacuum, and Toyota is building a new plant here in Woodstock, ON.

Remember, when the going gets tough, the tough get going, and God bless America.

[saltandsauce 0]

basically because so many companies in america are outsourcing so many jobs they are slowly killing themselves because people will be too poor to afford their products and they will go bust

only banning certain products made elsewhere from going in could possibly stop the outsourcing mania

yet nobody cares that the same happened in the UK in the 80s and the cotton mills were "modernised" in the 60s and 70s

[BurroDiablo 222]

Once again the media are banging the drums of impending doom-

http://news.bbc.co.uk/1/hi/business/7199552.stm

No doubt t'll be raining Bank managers soon...

[Frankie_Grove 32]

I'm still not quite sure where this is coming from, economic problems or not, every day it seems a new factory is staked out in my area. If the manufacturing sector is dying, why isn't the growth stopping? Perhaps its the Rust Belt cities that are causing this, or at least failing to a point that one small portion of the county affects the whole.

It is natural for businesses to expand their manufacturing to other counties, sure the US does it to Asia, however Europe does the same thing to the US. Germany and France in particular have invested huge sums in recent years locating their factories to the US.

Lastly, if during the Great Depression an Isolationist United States was able to affect the worldwide economy of the day, imagine what would happen if that were to occur again? If it does we'll see the effects of Globalization firsthand.

[LarksTonguesInAspic 28]

Originally posted by: N_O_Body 

Our fiscal institutions in Canada can react very quickly.  Not too many of our big banks were involved in the below-prime mortgage bubble, which has now burst.  Those investments were in the U.S.

quote>

 

Actually, the bulk of mortgage-backed securities were sold in overseas markets, particularly Europe. The Euro markets are taking a battering they won't soon forget on this, home mortgage holdings have lost their reputation for security permanently. Or at least until people forget again.

Cycle, cycle,cycle.

[krbe 193]

A 6,5% fall on the Norwegian Stock Exchange OSE today, and about 20-25% since the new year. That means a stock market crash (>20% fall). Well, if you look at history it isn't THAT bad--no recession has lasted for more than 18 months, while they usually are 8-12 months, then followed by a long growth period. I'm not that old, but I'm sure there are people here remembereing how it was BEFORE Bill Clinton made president in the US (the longest period of economic growth in the world)

Also, these recession always differ in nature: It affected Asia in 1998, the telecom/IT business in 2000, an overall (albeit short) slump following Sep. 11 2001 (except for airliners of course) and now the US and to some degree other Western banks feel the results of years of irresponsible lending (even tough banks like Northern Rock feels the impact, there aren't foreclosures all over Europe like it is in the US).

There are also differences between the European countries--here in Denmark the 5,5% fall is hardly mentioned in the online newspapers, while in Norway most newspapers has had the 6,5% fall as at least one headline today; I count 15 articles in the leading Norwegian business daily, usually highly negative (but two of them as "great chances"), often mentioning crash in relation to today's fall, while the Danish equvavlent has eight articles, most of them focusing on prices and fusions in relation to todays fall (and of course Bank Trelleborg, which has filed for bankruptcy and lost 69% today).

And remember, the American's had a day of (the M. L. King holiday), so we won't get the results before 1500-1600 GMT.

On another note; do not use Visa in Zimbabwe--they have a really real crash, and a lady had to pay USD 1800 for a dinner the rest of the party paid 20 (the official exchange is 250 Zimbabwe dollar for one US dollar, while one US dollar fetches 15-25 THOUSAND on the black market). The dinner cost 450.000 Z$--that's depression for you!

[zzazzmatazz 3]

To me, i say the economy is going down everywhere, mainly because of oil reserves...

Once the oil reserves get depleted which in about 20-30 years from now the entire world will grow desperate for energy.

Many countries in the middle-east will suffer alot, since they rely on oil as a top priority for there economy, and many developed countries such as in Europe, North America, and Asia will suffer the most, since oil is a major role in the economy: power for transportation, manufacturing, construction, and many other things that rely on power from oil.

With out oil there wouldn't be the world we see today, it will be much more different.

Id say oil is the reason why there is an economy today, without it many things wouldn't be possible, unless people start considering using alternative energy, but that will take many years to make people rely on alternative energy, and will take alot of time for people to realize the neccessity for it.

[Jasoncw 11,949]

Originally posted by: Frankie_Grove I'm still not quite sure where this is coming from, economic problems or not, every day it seems a new factory is staked out in my area. If the manufacturing sector is dying, why isn't the growth stopping? Perhaps its the Rust Belt cities that are causing this, or at least failing to a point that one small portion of the county affects the whole.

It is natural for businesses to expand their manufacturing to other counties, sure the US does it to Asia, however Europe does the same thing to the US. Germany and France in particular have invested huge sums in recent years locating their factories to the US.

Lastly, if during the Great Depression an Isolationist United States was able to affect the worldwide economy of the day, imagine what would happen if that were to occur again? If it does we'll see the effects of Globalization firsthand.quote>

The new factories in your area are moving from the Midwest.  It is the new national manufacturing "suburb".  And the factories that aren't moving from the Midwest are factories built by foreign companies, which doesn't help overall.

During the depression, while the US did not initially want to intervene militarily, we had always been very involved financially with the rest of the world.  Especially after World War One (and even more after World War Two) when we were very involved in their reconstruction.  And before that (and during I guess) the US dominated many industries, and did a lot of exporting.

[LarksTonguesInAspic 28]

Originally posted by: krbe  I'm not that old, but I'm sure there are people here remembereing how it was BEFORE Bill Clinton made president in the US (the longest period of economic growth in the world)

quote>

 

If you're of the view that BC could take credit for the economy, you are making a common mistake. He took credit for the long-term effects of the Reagan years; strange how no one associates his policies with the dot-com crash, among other things. 

Bush gets no props for the fact that lowered taxes helped keep the economy going after 9/11, when a recession loomed but never really broke nationwide; some spots did badly and some well but it was not a system-wide issue. The airline bailout was a colossally bad idea though.

--------------------------------------------

IMHO the trouble now is truly a basic economic issue...bad money always reverts to its true value. So many castles built upon debt, so many futures based upon other people's IOUs.

 A while back a friend and I noticed a new Escalade pulling a ski boat and trailer. He saw a nice new Cadillac SUV and bathtub toy, I saw $125,000 in debt, and very likely drawn on home equity. I would bet every penny I have in my pocket that whoever that was is in financial trouble now. How very American; borrow against the sun, instead of preparing for rain.

And this is a microcosm of the current meltdown; everybody got in the game counting on 365 days of sunshine a year, and they all are hurting at the first sprinkle.

Edit: And don't forget the words of Charles Lindbergh Sr, upon passage of Federal Reserve legislation in 1913: "From now on, depressions will be scientifically created."

Don't believe for one second that the major banks wouldn't let American kids starve if it served the bottom line.

[Micah 16]

Originally posted by: manticorefan

Originally posted by: N_O_Body 

Our fiscal institutions in Canada can react very quickly.  Not too many of our big banks were involved in the below-prime mortgage bubble, which has now burst.  Those investments were in the U.S.

quote>

 

Actually, the bulk of mortgage-backed securities were sold in overseas markets, particularly Europe. The Euro markets are taking a battering they won't soon forget on this, home mortgage holdings have lost their reputation for security permanently. Or at least until people forget again.

Cycle, cycle,cycle.quote>

 

Yeah, besides America, Europe is going to get hit the hardest. The markets worldwide dropped pretty badly. Some are predicting the DOW will loose 400 to 600 points tomorrow according to the future index.

I'm not that old, but I'm sure there are people here remembereing how it was BEFORE Bill Clinton made president in the US (the longest period of economic growth in the world)quote>

Not to sound rude, but Bill Clinton had absolutely nothing to do with the growth. It was called the Dot.com boom, not the Bill Boomiing Era or Clintonomics. 

To me, i say the economy is going down everywherequote>

Well, I agree but disagree that oil is the reason. It's global investment. Most foreign markets are invested in the US and that's what's going to hurt them badly. That's what caused the Great Depression. I'm not saying it will happen, but it would be dumb to ignore history nonetheless.

[belfastuniguy 18]

And before that (and during I guess) the US dominated many industries, and did a lot of exporting.quote>

Actually that was Britain, before America is was the largest economy and exporter on earth and we still are for banking, financial and insurance services.

Actually, the bulk of mortgage-backed securities were sold in overseas markets, particularly Europe. The Euro markets are taking a batteringquote>

Yes we are, well on Monday we did (one day), and we have only dropped to the level we were at on 9/11. European banks have and will be affected by sub-prime but the vast majority of the risk is still with American lenders. Several have had to write off 10's of billions no banks outside American have yet done the same.

On another note; do not use Visa in Zimbabwe--they have a really real crash, and a lady had to pay USD 1800 for a dinner the rest of the party paid 20 (the official exchange is 250 Zimbabwe dollar for one US dollar, while one US dollar fetches 15-25 THOUSAND on the black market). The dinner cost 450.000 Z$--that's depression for you!quote>

Actually that's hyper-inflation combined with a forced economic collapse by that [Edited for content] Marc Mugabe.

basically because so many companies in america are outsourcing so many jobs they are slowly killing themselves because people will be too poor to afford their products and they will go bust

only banning certain products made elsewhere from going in could possibly stop the outsourcing mania

yet nobody cares that the same happened in the UK in the 80s and the cotton mills were "modernised" in the 60s and 70squote>

Outsourcing certain industries can actually benefit the country through cheaper goods and lower inflation as a result. The UK cotton mills like its shipbuilding declined due to competition from new economics, that's a face of life and world trade, just have to live with it I'm afraid.

To me, i say the economy is going down everywhere, mainly because of oil reserves...

Once the oil reserves get depleted which in about 20-30 years from now the entire world will grow desperate for energy.

Many countries in the middle-east will suffer alot, since they rely on oil as a top priority for there economy, and many developed countries such as in Europe, North America, and Asia will suffer the most, since oil is a major role in the economy: power for transportation, manufacturing, construction, and many other things that rely on power from oil.

With out oil there wouldn't be the world we see today, it will be much more different.

Id say oil is the reason why there is an economy today, without it many things wouldn't be possible, unless people start considering using alternative energy, but that will take many years to make people rely on alternative energy, and will take alot of time for people to realize the neccessity for it. quote>

Wrong.....

The current state of the global economy is due to irresponsible lending and over excitement in financial markets that has come round to bite them on the arse. Oil prices are high due to speculation.

Europe actually generates most of its power through gas and nuclear. We also are more willing to push through change in new car engine technology and alternative fuels. Once people realise there are other ways to run their car and power stations then all these hissy fits about the end of oil being the end of the world will stop and people will wake up to the fact we have other way of generating power and fuelling our cars. I

[Boggy1 45]

Today the FTSE (London Stock Exchange) dropped a further 100 points from yesterday, meaning we have dropped 1000 points since Monday, wiping 77billion pounds of stock market shares. This is a huge stock market slump, far far lower than 9/11. The Asian and European markets have done even worse, with their stock prices totally crashing. Our family have lost a few thousand pounds, and the markets here at the moment are in "worst case scenerio mode".

One of the main reasons why this has happened is the US sub-prime lending. Since your consumer capatalist culture means that the majority of the people who are in debt keep on buying goods, and since the banks have suddenly demanded their money back, the industries are totally failing because obviously people with no money (not even borrowed money) can't buy anything.

I think that the great big global market boom which we were waiting to start, has already started and finished, and now we are in a recession. Possibly a depression.

[belfastuniguy 18]

Markets fall all the time. The current phase will pass in a few weeks. We have lost I think over 60,000, maybe more, but its nothing to get all worried about, stock markets fall and rise. Once the profits have been announced and we move past that the markets will start to recover. Other sectors will also recover more quickly. We have already starting moving investments about and selling some stock and buying other. (I say we, I mean my parents)

We are certainly not in a depression, and calling TWO DAYS of negative trading is not a indication we are experiencing a recession, far too early to call it that. Too much drama, people just need to take a step back and properly assess the situation. Remember the FTSE fell but later recovered.....America is the problem here and they need to sort it out..

since the banks have suddenly demanded their money backquote>

No they are not.......maybe you are referring to American repossessions, that is certainly not the case in Europe and Asia, our banks are in pretty good health and are just having some issues borrowing money.

[Psycho_Teddy 25]

I dunno about you guys, but I think Boggy brings up a strong point.  If markets are falling below post-9/11 levels, we indeed have a problem, especially since there has been no crisis.

"Where are we going, and why am I in this handbasket?" pretty much sums it up, kids...

(Btw, thats a very funny quote, I thought)