2010 Could be very UGLY.

1) According to the IMF there is another $1.7 trillion of financial losses to be written down

2) The scope of the great recession is unprecedented

3) There is no replacement for the US consumer to act as the engine of global growth

4) In the US M3 is declining and lending to the private sector is contracting

5) The global imbalances between surplus countries and deficit countries is very much in tact

6) Fourth, the surplus countries – China, most openly – show little or no interest in making the needed policy changes

7) There will be no meaningful financial reform and toxic assets have not been written down

Sovereign state are releveraging to extreme levels as individuals and corporations continue to deleverage; credit risk is simply be shifted from the private sector to the public sector and

9) Recovery from a financial crisis is a protracted affair

10) Housing prices will wall further as support is withdrawn and the tsunami of option ARMS reset

The recovery of the so-called real economy has now started from low levels in the third phase of the crisis, but the upswing is fragile. There is a deceptive calm.

Increasing risks are now in the financial sector, which alone enjoys carrots and no whips. Therefore, risk of new bubbles that build up, not least in Asia. There is now a deceptive calm before the fourth phase of the crisis when the government debt increased to undesirable levels and asset price bubbles start to burst.

I expect the world economy will grow by 2,0-2,25 percent in 2010 and 2011, slightly stronger than the assessment in the autumn. In the medium term growth outlook is “significantly more pessimistic.”

The recovery is expected to be humble in many OECD countries, while emerging economies have greater growth potential. However, there are increased risks of overheating, not least in China, which in my opinion should realize that unsustainably high credit growth and rising asset prices is the wrong prescription for creating a sustainable and stable economy.

“Now there is a deceptive calm. Stimuli did benefit, but the recovery in asset markets and the real economy is simultaneously fragile and highly dependent on stimulus”.

I would add to the financial market is now held under the arms of assistance, without
regulations have been tightened, as interpreted by the industry as the go-ahead for the increased risk.

In the short term, most factors a cautious and slow recovery in the OECD
countries, which certainly helps the stimuli, but can not replace the “problems that arise when unemployment rises to high levels of foreclosures of houses increases in eg the United States and concerns about the disengagement incentives and new declines are”.

In emerging economies, however, the situation is different. They have large surpluses in the current and budget balance could be strong in the crisis. Emerging countries also have higher potential growth and return on capital, and has been able to produce large stimulus package, while they have a high credit growth, generating growth, but also an increased risk of bubbles in asset markets, particularly in China.

“There is a clear risk of overheating, partly due to stimuli transmitted through the banking system, partly as a result of capital inflows in the carry trade.”

I write further to inflation in China now rising and house price developments inspire greater concern in some områden.Om China can learn from Japan’s crisis is not that growth will be driven up by an unsustainable credit growth and rising asset prices.

I expect that China will change its currency policy in 2010, but possibly only in 2011 on the development of robust exports, the labor market seems less stable, and global growth, the situation improved slightly. But also sees more risk to it after the crisis following an extended period of weak growth and low inflation, than the opposite. It can lead to collapse in China.

There are some reasons why debt restructuring is needed, high unemployment, economic policy
tightening, tightening regulations, and a continued commitment to low inflation. Moreover, it appears to be relatively small gains for the public debt dynamics to drive up inflation, while the costs to society are greater.

Alert: The Canadian Prime Minister says that the “RECESSION” is NOT over…

- CautiousInvestor & oskarfredrik

Related Posts:

• World´s economies is not strong. I warns for value-overheating.
• DJIA on track for worst monthly loss since February 2009
• Why don’t analysts know what the “timing” is on this crisis?
• Dr Doom sees more gloom
• WTO chief says world recovery not guaranteed in 2010

Leave a comment