Is our global economy screwed?
June 20, 2012 6:48 PM Subscribe
So, how bad will the forecasted financial crisis be in 2013/eurogeddon? and what could be read to refute the total gloom and doom of these guys? And if the world economy starts sliding, what are the early signs before the shit really hits the fan?
Nobody knows how bad it'd be; the safe answer is "very bad." A very great deal would depend on the specific details --- would the euro cease to exist, would Germany retrench and retain a monetary union with some of the northern European countries, etc.
Last time around, the TED spread was the one to keep your eye on. It's the difference between three-month US treasuries and the three month LIBOR, or in English, the difference between how much back trust the US government verses how much the trust each other. Generally speaking, chances are almost always better that the US government will still exist and be able to pay you back three months from now than that any given bank will, no matter how large, so you always expect there to be some difference. But when the spread gets really high --- when banks charge four or five times as much to a fellow bank as they do to the government, this is a sign of extreme shadiness, because the bank is effectively saying "I am four to five times less confident that you will still exist five months from now". If Greece exits and it looks like the banks that leant it money are going to get stiffed, then you'd expect the ted spread to rise.
posted by Diablevert at 8:17 PM on June 20, 2012
Last time around, the TED spread was the one to keep your eye on. It's the difference between three-month US treasuries and the three month LIBOR, or in English, the difference between how much back trust the US government verses how much the trust each other. Generally speaking, chances are almost always better that the US government will still exist and be able to pay you back three months from now than that any given bank will, no matter how large, so you always expect there to be some difference. But when the spread gets really high --- when banks charge four or five times as much to a fellow bank as they do to the government, this is a sign of extreme shadiness, because the bank is effectively saying "I am four to five times less confident that you will still exist five months from now". If Greece exits and it looks like the banks that leant it money are going to get stiffed, then you'd expect the ted spread to rise.
posted by Diablevert at 8:17 PM on June 20, 2012
"how much banks trust the US government vs. how much they trust each other," I should have said. Forgot to preview, sorry.
posted by Diablevert at 8:19 PM on June 20, 2012
posted by Diablevert at 8:19 PM on June 20, 2012
"Those guys" have registered a url and are presumably selling a book that predicts doom and gloom. They are motivated to make things sound as bleak as possible. Any other reasonable, impartial forecast could refute them.
For bonus points, google all the absurd "we'll all be squatting in a ditch shooting each other for fuel and potatoes" predictions about the 2008 crisis. None of them even came close to being accurate,
posted by drjimmy11 at 9:27 PM on June 20, 2012 [2 favorites]
For bonus points, google all the absurd "we'll all be squatting in a ditch shooting each other for fuel and potatoes" predictions about the 2008 crisis. None of them even came close to being accurate,
posted by drjimmy11 at 9:27 PM on June 20, 2012 [2 favorites]
Put another way:
This is a scam site that wants your credit card number. They clearly believe in the world economy enough to believe they'll still be able to ding your credit card with a monthly charge for their "services" for the foreseeable future.
posted by drjimmy11 at 9:28 PM on June 20, 2012 [10 favorites]
This is a scam site that wants your credit card number. They clearly believe in the world economy enough to believe they'll still be able to ding your credit card with a monthly charge for their "services" for the foreseeable future.
posted by drjimmy11 at 9:28 PM on June 20, 2012 [10 favorites]
Most of the predictions I see from banks and credit rating agencies think that Greece remaining in the eurozone is the most probable outcome in the near term, though there's a reasonable chance that it will exit, which would have effects ranging from bad to very bad. The best case and most likely scenario seems to be that Europe will muddle through; lots of slow growth and debt repayment, but not a total disaster. I'll try and get some links when I get to work.
posted by Infinite Jest at 12:17 AM on June 21, 2012
posted by Infinite Jest at 12:17 AM on June 21, 2012
The economic consequences of the huge dept/bank deregulation have yet to fully develop. The EU will get it's act together, in the short term, to prop up and prevent the collapse of Greece, then Spain, then Italy, then France but the underlying issues; over optimism in Western development remains. The underlying trend, economically and socially, is for a contraction of economies.
The social effects of the economic crisis will be the next challenge. Right wing parties are already prominent in Greece and France. The nightmare would be if the mass of unemployed, disenfranchised, dislocated people (currently young) in Greece and Spain aggravate Europes latent fault; xenophobia and national self interest. I would expect that by 2013 the economic shape of Europe and the world will be clearer, but the social effects will just be starting to be evident.
posted by BadMiker at 5:17 AM on June 21, 2012
The social effects of the economic crisis will be the next challenge. Right wing parties are already prominent in Greece and France. The nightmare would be if the mass of unemployed, disenfranchised, dislocated people (currently young) in Greece and Spain aggravate Europes latent fault; xenophobia and national self interest. I would expect that by 2013 the economic shape of Europe and the world will be clearer, but the social effects will just be starting to be evident.
posted by BadMiker at 5:17 AM on June 21, 2012
When the bottom dropped out in 2008, the big indicator that I noticed first was gasoline prices dropping precipitously. Stocks and crude and other commodities can suffer from their own market psychologies that have nothing to do with actual demand. But gasoline is a little more directly connected to the marketplace, and if prices drop sharply, that means that demand has dropped sharply and somewhat unexpectedly.
The other thing I noticed (and I WISH I could find the chart I saw again) was that volume of interbank lending and discount window lending went through the roof. Banks were closing their books at the end of the night and finding they had a lot less money than they started with, because people weren't paying their loans.
posted by gjc at 6:31 AM on June 21, 2012
The other thing I noticed (and I WISH I could find the chart I saw again) was that volume of interbank lending and discount window lending went through the roof. Banks were closing their books at the end of the night and finding they had a lot less money than they started with, because people weren't paying their loans.
posted by gjc at 6:31 AM on June 21, 2012
More discussion than you can handle on the Euro economy/world economy. Soros's prefatory remarks start at 54 minutes.
posted by Coventry at 6:51 AM on June 21, 2012
posted by Coventry at 6:51 AM on June 21, 2012
In terms of Greek euro exit, you're not going to see any specific early warning signs - nobody is going to come out and say "Greece is going to leave the euro next month". They'll wait until markets are closed on a Friday, then shut everything down, close the banks, close the (Greek) markets, declare a week or so of bank holidays, put guards in banks and hand out limited amounts of cash each day until they've got the drachma up and running.
So you're really looking for rumours, signs that preparations for exit are underway behind the scenes, statements from major figures that indicate that an exit could be OK, etc. Reuters is a good place to look for this stuff - for some reason they get a lot of leaks from eurozone entities (e.g. this one).
I had a look for bank/analyst reports - most of the ones I found focus on the impact for corporates/banks, rather than the person in the street. Let me know if you'd like me to post links.
posted by Infinite Jest at 9:04 AM on June 21, 2012
So you're really looking for rumours, signs that preparations for exit are underway behind the scenes, statements from major figures that indicate that an exit could be OK, etc. Reuters is a good place to look for this stuff - for some reason they get a lot of leaks from eurozone entities (e.g. this one).
I had a look for bank/analyst reports - most of the ones I found focus on the impact for corporates/banks, rather than the person in the street. Let me know if you'd like me to post links.
posted by Infinite Jest at 9:04 AM on June 21, 2012
Suggest you listen to Jeffery Sach's comments just prior to Soros in Coventry's link. He emphatically states that there is no global economic crisis.
posted by canoehead at 2:35 PM on June 21, 2012
posted by canoehead at 2:35 PM on June 21, 2012
Oh, also, the panel directly addresses the question of how a Euro failure might affect the US and the rest of the world at around 1h25m.
It's also worth noting that the panel was in February (I didn't notice when I posted it.) But there really hasn't been any substantial change in the situation since then, that I'm aware of.
posted by Coventry at 7:32 AM on June 22, 2012
It's also worth noting that the panel was in February (I didn't notice when I posted it.) But there really hasn't been any substantial change in the situation since then, that I'm aware of.
posted by Coventry at 7:32 AM on June 22, 2012
This thread is closed to new comments.
posted by Coventry at 7:33 PM on June 20, 2012