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  1. Wealth
July 18, 2013

Amid economic gloom, more gloom – and a rare shaft of light

By Spear's

The only tentative signs of recovery are in the Anglo-American economies

The EU as we all now know – apart from for the euro-elites meant to be running it – is a long-term serial disaster movie. Greece and Portugal are all but bust – again – and now Italy, whose national debt is 129 per cent of GDP, has been downgraded by Standard & Poor’s to BBB, or near-junk status.

The only good news from Club Med is that Spain’s downturn appears to have bottomed out, but with 27 per cent unemployment. France is rudderless and in economic decline, with the public sector consuming 56 per cent of GDP, which is anyway falling further.

Read more: Bury this busted flush of a euro

All of this isn’t helping Germany, where growth has been cut to just under 1 per cent. The eurozone, however, is waiting with bated breath for Merkel’s re-election on 13 September, to get some leadership through the returning crisis. Her austerity-imposed deflation within the single currency is already impacting real economies and her re-election is more likely to make things worse – much worse.

Then the BRICS are off the boil as well, with serious issues in China: a secondary shadow banking system has risen up which makes the West’s shadow banking system in 2009 look like a vicar’s tea party: all the new talk of SIVs, conduits and trusts, and the tightening of overnight Shibor interbank rates at 29 per cent recently, reminds us of Northern Rock, Bear Stearns and Lehman.

China smashed

China’s bank lending has soared to 221 per cent of GDP, up almost eight times in the last decade, and up from $9 trillion to $23 trillion since 2009 alone, an unheard-of rate of monetary growth.

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Japan has belatedly devalued by 30 per cent, delivering a blood-curdling dose of deflation throughout the rest of the Far East economies, long after the other nineteen in the G20 had played the same devaluation card when they all agreed to do no such thing. Japan may itself soon start recovering, but has catch-up to do. </p>

The only tentative signs of recovery are in the Anglo-American economies. The UK is showing signs of recovery but is still 4 per cent off its 2008 peak, and is threatened by its over-reliance on the EU.

Read more: The nuts and bolts of EU membership

And what is happening to Uncle Sam? It’s hard to separate hope from hype, fact from fiction: how do you reconcile strong employment growth with rising unemployment, for example, with record numbers collecting food stamps? The Fed’s balance sheet is looking more like Fannie May and Freddie Mac before they both crashed and burned, as it keeps adding $85 billion of mortgages and bonds to its obese balance sheet every month, while the one-off sequestration cuts of the same amount are just beginning to bite.

Nevertheless auto sales were up 9.2 per cent in June and house sales were up 2.1 per cent in May. If it is a recovery, it’s worth checking if the price of Curate’s Eggs is rising on the Chicago Exchange.

Helpful guidance

Then the US Fed heralded the end of QE was in sight and monetary tightening ensued around the world as markets tumbled. So the Fed, the BoE and ECB all announced forward guides of low interest rates for several years, to calm things down, just as Standard & Poor’s called the end of the corporate capex cycle, which most of us had hardly even realised was in any sort of recovery yet.

There is a long road ahead, with many unfilled potholes, to anything like a global recovery – about as far in fact as the long, long way to Tipperary.

Read more from Stephen Hill


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