Jul 06
28
Global Economy. The Tipping Point Is Approaching – Fast
The latest essay by Stephen Roach is compelling. As a very sane economist who has a responsibility to engender calm amongst his readers, this latest review of the confluence of economic events, and the need to understand the full risks of interdependence is all the more interesting.
If this does not set the alarm bells ringing when you read the whole lot, I would be very surprised.
Here is a sample:
that basis, the interplay between high oil prices, a property market
correction, and monetary tightening poses potentially serious downside
risks to an unbalanced global economy. That conclusion is not evident from the compartmentalization of ceteris paribus. Instead, it is very much an outgrowth of a broader, or general equilibrium, assessment of macro risks.
Now when you get past the jargon, what he is saying is this: US record deficit + US interest rate tightening + housing market turning + increased price of oil = US consumer confidence goes South, and US business confidence right behind it = Chinese manufacturing turns negative = commodities sales goes south = Global bust.
So the world's oil companies post record profits and what happened to the US consumer? They hit the wall in their big new SUV. The fact is that the economy of the world is totally interlinked and fighting a war without end saps the lifeblood out of the economy. It takes the money and worse still it takes the soul. It is impossible to create good when your basic premise is the taking of life.
War is bad. Profits made from war will bring down the system ultimately. Over the next year we are going to see a hard economic landing. I think that if you read between the lines, this is what Stephen Roach is telling us.