Global recovery: Don’t bet on anything being a sure thing at this time short term.

If the global recovery doesn’t pan out, we will be back to the crash period we had when the financials started collapsing. There would be another leg down globally, only this time, it would be much worse for the developed nations.

Don’t bet on anything being a sure thing at this time short term. Most believe the global recovery is real and will keep equities from hitting March lows. That may be true or not. The fundamentals are still not there and the recovery is based on stimulus that has to be eventually pulled in all the nations using it for growth.

The U.S. is on its last legs as are several developed nations due to debt. It isn’t one nation in Europe that threatens it but several. Here is it is several of the large GDP states that threaten us and the fact that we are still using the policies that got us into this crisis because, to end them would mean “Depression” now, instead of later.

When you have your own government accountants in both the GAO and CBO saying we are using policies that are unsustainable and the GOA, in writing telling Congress we face the loss of our standard of living AND domestic tranquility.

The loss of domestic tranquility is a nice way of saying riots, looting, rising crime rates and people committing suicide that can no longer get the basic needs for their families. This is how empires normally end and we are following a trend put in place in empires for thousands of years.

The dollar is toast but, we just don’t have the timing. Even if they started doing what was best for the nation, they can’t get out of this without a depression and getting household, corporate, city, state and federal debt down to a manageable level. The last time took 10 year or so. Some think it can be done in five years but, often that doesn’t take into consideration, we have the global reserve currency. That will make it worse for us due to our massive dependence on imports for food, goods, raw materials for our factories, and energy.

The one thing a global economic collapse would mean is that prices on commodities that are used for factories would stop rising and resume the plunge like we saw when the global economy headed down. That would trigger even more stimulus and drive gold up but, the stimulus won’t have even the boost (what little there was) that it did this time.

We better hope the global recovery is real and we do have inflation because that would even help the U.S. from having as bad a depression as we will have because those who prepare for that inflation will be able to keep spending. A default may happen but, isn’t as likely when you have your own debt in your own currency. It is more likely when your debt is held in other currencies.

Gold could easily go down another $80 or so and test the level India bought at and the dollar could rally in price for as long as the euro is going down as it is 57% of the weight the dollar is measured against. With the much higher leverage Europe has, its financial system is at great risk due to several nation that are at high risk.

Gold is an indicator of financial health and currency health and where trends are leading the developed nations and whether gold is very accurate or not, the trends are all bad in the developed nations. Again, they are depending on the emerging markets and their recovery as being real to prop them up. That is why they allowed them into what was the G-7 and is now the G-20. They have to cater to them as more and more economic power shifts to them.

It is the emerging markets that will determine global prices of foods, goods, and services here and in other developed nations not our demand or Europe’s demand. They have already passed the total consumption of oil in developed nations and are the main reason the IEA has been raising demand forecasts for 2010 and beyond. A global downturn will make all those forecasts look silly but, if the global recovery is real, it will make our citizens all the more miserable and continue to erode paychecks.

Also, according to analysts I have read, 20% corrections in commodities is normal and to be expected from time to time in their 20 year bull runs.

- JanPaul

Related Posts:

• When your own government accountants are the biggest doom and gloomers, you better pay attention.
• The solutions have been provided but, nobody likes them because they cause a depression.
• Sadly, Obama didn’t save us from Depression, only made it worse when it comes.
• The U.S. is past paying debts back.
• Must-Know News - Feb. 27

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