Are You Prepared For The Coming Global Recession?

[PeterRS]

China! We talk about it a lot of time time, sometimes in relation to Hong Kong, sometimes Taiwan, sometimes its strict covid lockdown policy. Now though, a whole series of nasty events is affecting that country that threatens not only its own economy but the economy of the world. Last week, the CEO of Huawei warned that the chill from China's forthcoming economic downturn will be "felt by everyone" for the next decade.

A long article on The Guardian website today points out that many problems for China have come to a head at the same time. These include a total collapse of confidence in the property market that has kept the economy buoyant - an issue discussed for years but always thought to be one the central government would never allow to happen - now looks likely; increasing popular fury at the zero covid policy; the effects of a disastrous heatwave affecting supplies of power and food; runaway inflation in the rest of the world "threatening a bleak winter for developed economies from the US to Europe, and from Japan to South Korea" and the resulting high interest rates bringing reduced demand from around the world [with the likelihood that China's exports are] "likely to fall off a cliff during the coming 12 months".

In the 2008 economic meltdown, it was China that kept the world economy afloat with a 4 trillian Yuan stimulus. 

"But with Beijing in the process of decoupling from the western-led world order and debt-driven growth out of favour, another Chinese rescue mission seems very unlikely. Instead, China faces Japan-style “lost decades” as it tries to absorb the billions of dollars of dud property loans." [The 1990s and early 2000s were years of economic stagnation for Japan following the huge boom years of the 1980s].

“'In the short-term China’s economy is being hammered,' Rajah [Roland Rajah, the lead economist at the Lowy Institute, a thinktank in Australia] says. 'It remains to be seen what the medium- to long-term consequences could be. But China also faces very significant longer-term headwinds from demographic decline and ageing, creeping statism, and its increasingly difficult external relations.'”

"Falling external demand is the 'next shoe to drop' for China, according to David Llewellyn-Smith, the chief strategist at the investment and asset management firm Nucelus Wealth in Melbourne, and will leave China in a perilous state.

"'The private sector is being hammered by Omicron, the external sector hammered by global weakness, and public sector doing what it can to pick up the slack but it faces various inhibitions on fiscal policy. It’s a very toxic combo for China. Very difficult to manage,' he says.

“A Chinese recession is absolutely in the frame over next year. That’s going to have incredible implications for global markets of all kinds.”

https://www.theguardian.com/business/2022/aug/28/crunch-time-china-tries-to-fend-off-property-crash-global-economy

[floridarob]

nope, not ready, never have been

[vinapu]

look at bright side ,

20% unemployment means that 4 out of 5 people in the subway car are going to or from work

less time in the mall means more sitting on the bench in the park and reading

never waste a good recession somebody wise one said

[PeterRS]

16 minutes ago, vinapu said:

look at bright side

Sorry, but I tend to think of all the tens of millions (maybe 100s of millions) who will be out of work or earning a fraction of what they used to earn, who will have to get used to electricity bills 70%-80% higher and have diffficulty putting food on the table for their families. There is no such thing as a "good recession" for anyone - apart from the rich.

[JKane]

The clusterfuck Chinese real estate market has been overdue to tank China's economy for a while now.  

And I'm sure it'll be bad.  But maybe there's a bright light to Covid in that it's already given us supply chain shocks, encouraged diversification of important supplies, and put us all in the mindset "everything sucks now and apparently forevermore, keep slogging ahead" so maybe it'll have less impact than it would've in the before times.  

I mean most Chinese will lose the majority of their investments, and their banking system will probably faceplant... but... The West isn't invested in their bubble much, right?  And we have been warned strongly against their no-oversite stocks.  Meanwhile, they'll need work and money more than ever...  And they're still more economically important to the West as an exporter/producer than a consumer. 

China as a whole will be less able to buy our debt or invest in our projects, but any Chinese people who can manage individually will be desperate to invest anywhere but at home, and the rest of the world will go from flirting with changing their reserve currency and increasing their sovereign-fund investments in China to running full-tilt back to US.  

Places that were encouraged to economically rely on China might be fucked.  But the West... might be better off after some brief shocks?  We'll go from being unable to compete with China to them desperately trying to get whatever they can from us.  Buy back all those ports and other projects they put so much into for pennies on the dollar?  

Am I too optimistic?  Entirely idiotic?  

[vinapu]

4 hours ago, PeterRS said:

Sorry, but I tend to think of all the tens of millions (maybe 100s of millions) who will be out of work or earning a fraction of what they used to earn, who will have to get used to electricity bills 70%-80% higher and have diffficulty putting food on the table for their families. There is no such thing as a "good recession" for anyone - apart from the rich.

Peter

of course you are right but unfortunately reality of our world is that even in best of times there are 100's of millions who are  be out of gainful work and have difficulty putting food on the table for their families, day after day. Those people will not even worry about their electricity bills because they don't have an access to any.

As for good recession, I'm great -grandson of poor farmer who after First World War was so heavily indebted that was already ready to just abandon farm and go to America to seek better life. Then hyperinflation hit and he was able to repay is debt as family tradition maintains, by selling few geese. That farm was in hands of my relatives  till 2015 when they retired from farming and sold all. Subsequently his granddaughter, my mother was able to meet my father and   produce me.  So forgive me that I really believe in good recessions.

 

[vinapu]

4 hours ago, JKane said:

 

Am I too optimistic?  Entirely idiotic?  

You are neither. Of course your scenario may not work way envisioned but harsh times apart from tormenting populations also enable to find savings, improvements  and efficiencies in areas when we did not even suspect it will be possible. It's to to advocate beauty of hard times, rather if they are coming or actually are is to look at how to did ourselves from that first and only then to look back what went wrong

[fedssocr]

YouTube is full of videos about this. They've been sounding this warning for a long time. Certainly there are lots of problems all coming to a head at the same time.

[PeterRS]

I am old enough to remember the recession in the UK in the 1970s which lasted virtually the entire decade. The primary cause was the increasing influence of OPEC which started by raising the price of oil by 400%. At the same time, the Conservative government of Edward Heath took on an increasingly militant miners' union. The end result was a 3-day working week and daily electricity cuts. Averge inflation in that entire decade was 13.2%. In 1975 alone inflation reached 24.2%. Between 1973 and 1975 poverty rates doubled.

Britain survived but it was only through what might be called a quirk of fate. In the late 1960s the oil producers had discovered oil in the North Sea off Scotland. The UK was to become a nett oil and gas exporter by the end of the 1970s. How deep would the recession have been without the benefit of North Sea oil revenues?

As @fedssocr points out, today lots of problems are coming to a head at the same time. With democracies now a den of partisan school bullies with one Republican Trumpist senator in the USA even suggesting last Sunday there will be riots if Trump is indicted - aside: how on earth did Senator John McCain ever find the frightful Linday Graham a close friend? - who is going to lead the world out of the coming crisis?

[tassojunior]

Who's going to buy US debt? 

[reader]

Just about everybody, it seems.

Top Foreign Owners of US National Debt

https://ticdata.treasury.gov/Publish/mfh.txt

[PeterRS]

8 hours ago, tassojunior said:

Who's going to buy US debt? 

8 hours ago, reader said:

Just about everybody, it seems.

I doubt if anyone seriously believes at a time of soaring inflation when national economies are desperately trying to reduce debt built up over the covid crisis and at the same time keeping their national costs of living from going through the proverbial roof, many countries will be in the market to purchase any other country's debts!  

[reader]

7 hours ago, PeterRS said:

I doubt if anyone seriously believes at a time of soaring inflation when national economies are desperately trying to reduce debt built up over the covid crisis and at the same time keeping their national costs of living from going through the proverbial roof, many countries will be in the market to purchase any other country's debts!  

Actually owning a large portion of the US national has proven quite beneficial to Japan over time.

Japan is the largest holder of US debt (1,236 billion USD worth) and has one of the world's lowest interest rates on it's 10-year bond (0.226%).

[Lonnie]

1 hour ago, reader said:

Actually owning a large portion of the US national has proven quite beneficial to Japan over time

We are about to reward Japan with inflated dollars worth much less...I believe they recently woke up to this game and stopped buying our debt.

"A trillion here and a trillion there and pretty soon you're talking real money"...to paraphrase Everett Dirkson.

[reader]

41 minutes ago, Lonnie said:

We are about to reward Japan with inflated dollars worth much less...I believe they recently woke up to this game and stopped buying our debt.

"A trillion here and a trillion there and pretty soon you're talking real money"...to paraphrase Everett Dirkson.

We'll have to wait and see what Japan did last month.

But Dirksen sure did have a way with words 😄

[PeterRS]

16 hours ago, reader said:

Actually owning a large portion of the US national has proven quite beneficial to Japan over time.

Japan is the largest holder of US debt (1,236 billion USD worth) and has one of the world's lowest interest rates on it's 10-year bond (0.226%).

Japan has one of the lowest interest rates because the Japanese population has not been spending at anywhere near the same rate as in other countries for many years. Having been burned badly in the 'lost' decade, they prefers to save. For many years the government has tried to encourage spending. None has worked. So some time ago it introduced negative interest rates. In other words, you pay the banks for holding your money!

Japan's national debt as a percentage of GDP is also well over double that of the USA - around 291% to 128%.

[PeterRS]

In an earlier post, I used the 1970s as a comparison of what the world might be facing. In today's Guardian newspaper there is a letter from a lady who also lived in that decade which paints an even bleaker picture.

"The current crisis with regard to rising inflation is often being compared with problems with inflation in the 1970s (Energy prices could push UK inflation to 22%, a near postwar record, 30 August). This has made me think about that time. I had babies in 1973 and 1976; there was very little part-time work, so I either worked part-time when I could or did casual work. My husband worked for the local authority and although the income was regular, it was fixed and just enough to get by – so we managed.

"I do not remember prices in the supermarket, or anywhere else, rising at the speed and rate at which they are now, and of course all utilities were still publicly owned, so those prices were stable.

"I feel quite angry about the present comparisons. We didn’t need food banks, there was no talk of “heating or eating”. But then the gap between the haves and have-nots was not so wide.

"I believe that the 70s were the time of greatest financial equality since the second world war. That changed in the 80s and has never gone back."

https://www.theguardian.com/business/2022/sep/02/in-the-1970s-we-didnt-have-to-choose-between-heating-and-eating

[reader]

From CNBC

‘Why shouldn’t it be as bad as the 1970s?’

Historian Niall Ferguson warned Friday that the world is sleepwalking into an era of political and economic upheaval akin to the 1970s — only worse.

Speaking to CNBC at the Ambrosetti Forum in Italy, Ferguson said the catalyst events had already occurred to spark a repeat of the 70s, a period characterized by financial shocks, political clashes and civil unrest. Yet this time, the severity of those shocks was likely to be greater and more sustained.

“The ingredients of the 1970s are already in place,” Ferguson, Milbank Family Senior Fellow at the Hoover Institution, Stanford University, told CNBC’s Steve Sedgwick.

“The monetary and fiscal policy mistakes of last year, which set this inflation off, are very alike to the 60s,” he said, likening recent price hikes to the 1970′s doggedly high inflation.

“And, as in 1973, you get a war,” he continued, referring to the 1973 Arab-Israeli War — also known as the Yom Kippur War — between Israel and a coalition of Arab states led by Egypt and Syria.

As with Russia’s current war in Ukraine, the 1973 Arab-Israeli War led to international involvement from then-superpowers the Soviet Union and the U.S., sparking a wider energy crisis. Only that time, the conflict lasted just 20 days. Russia’s unprovoked invasion of Ukraine has now entered into its sixth month, suggesting that any repercussions for energy markets could be far worse.

“This war is lasting much longer than the 1973 war, so the energy shock it is causing is actually going to be more sustained,” said Ferguson.

Politicians and central bankers have been vying to mitigate the worst effects of the fallout, by raising interest rates to combat inflation and reducing reliance on Russian energy imports.

But Ferguson, who has authored 16 books, including his most recent “Doom: The Politics of Catastrophe,” said there was no evidence to suggest that current crises could be avoided.

“Why shouldn’t it be as bad as the 1970s?” he said. “I’m going to go out on a limb: Let’s consider the possibility that the 2020s could actually be worse than the 1970s.”

Continues with video:

https://www.cnbc.com/2022/09/02/1970s-inflation-historian-niall-ferguson-has-a-warning-for-investors.html

[vinapu]

9 hours ago, PeterRS said:

"I believe that the 70s were the time of greatest financial equality since the second world war. That changed in the 80s and has never gone back."

 

in 70's USSR was still superpower and communism was still well entrenched and with it somewhat attractive replacement model ( I know it sounds strange but I know somebody from Eastern Block visiting then  family in USA,  aged well past 30 , who was shocked to learn that in order to go to dentist one needs to take money with him, his favorite story to this day ).

That kept capitalistic excesses so well visible today in check

[PeterRS]

14 hours ago, vinapu said:

in 70's USSR was still superpower and communism was still well entrenched and with it somewhat attractive replacement model ( I know it sounds strange but I know somebody from Eastern Block visiting then  family in USA,  aged well past 30 , who was shocked to learn that in order to go to dentist one needs to take money with him, his favorite story to this day ).

That kept capitalistic excesses so well visible today in check

I find it strange to believe that communism should have kept excesses of capitalism in check. Surely it had nothing to do with communism. It was the policies of President Reagan and his crony Margaret Thatcher which freed up economies and encouraged speculation. In Britain that meant selling off state assets (admittedly they were inefficient), selling off local Council housing and encouraging individuals to place part of their savings into share ownership. As that and the following decade progressed, greed on a large scale became virtual state policies. I remember getting a taxi from JFK to my hotel in the late 1990s during the dot com bubble. My taxi driver asked how much I'd made that day. I had no idea what he meant. Buying and selling stocks, he said. That day he had made US$2,000 in day trading - in and out of the market in a few hours. 

Then came the day that bubble burst. Then came 2008. Then came covid. The big players, the massive institutional investors which always have a head start even though it's only measured in fractions of seconds, mostly survived or were bailed out. The individuals who lost most of their savings were left to fend for themselves - as usual. With 14 years of ultra low interest rates, keeping up with inflation for most has been all but impossible. 

It was to a large extent the desire by so many to make a quick buck through greed and speculation that is the reason we are where we are. That and a slew of incompetent so-called leaders who should never have been allowed anywhere near a political process.

[vinapu]

10 hours ago, PeterRS said:

I find it strange to believe that communism should have kept excesses of capitalism in check. Surely it had nothing to do with communism. It was the policies of President Reagan and his crony Margaret Thatcher which freed up economies and encouraged speculation.

surely communism did. It was why labor friendly laws an welfare state was devised.

Do you think today's capitalists would give us  8 hours work day, health insurance or paid vacations if they  did not inherit those from the past.

We tend to forget that USSR and system it represented sending first two people into space was not laughing stock it become  later when rise of consumer society  in the West coupled with  bankruptcy of communism  becoming  visible after crushing Solidarity movement in Poland and Afghanistan fiasco.

Only then so called neo-liberals in Reagan and Thatcher mode could emerge and come to power. Even if them and their ideas were alive before they were tamed because of fear other model may turn  attractive before it turned rotten. 

Nobody says it's bad it did not materialize  but for  a while scare existed. It's why American autoworker today needs to work more hours to buy a car he produces than his father working on his in 60-ties. 

10 hours ago, PeterRS said:

It was to a large extent the desire by so many to make a quick buck through greed and speculation that is the reason we are where we are.

that desire and greed always existed, only changes to capitalistic system in 80-ties described by you , then ' end-of history" liberal crowd after communism collapsed made it possible to today's extend in meantime feeding another monster in the form of Chinese economy and world's dependence on it. Again fed by greed of Western corporations and yes, us,  Western consumers

[Mavica]

No, the sky is not falling.

[PeterRS]

12 hours ago, vinapu said:

surely communism did. It was why labor friendly laws an welfare state was devised.

Do you think today's capitalists would give us  8 hours work day, health insurance or paid vacations if they  did not inherit those from the past.

We tend to forget that USSR and system it represented sending first two people into space was not laughing stock it become  later when rise of consumer society  in the West coupled with  bankruptcy of communism  becoming  visible after crushing Solidarity movement in Poland and Afghanistan fiasco.

I reckon I had not given enough thought about it as a reaction to communism. But I still cannot believe it had anything to do with western nations reacting to communism after World War II. Western nations had had enough of communism advancing into Eastern Europe, the Berlin airlift, the spies, the race to build even bigger and better nuclear bombs being tested by exploded in the atmosphere - and so on. Communism by then was a disease to be feared and rooted out, not to be envied and in any way copied.

So if communism did affect capitalism, it's surely impossible it could have done so as late as the 1970s. It certainly had an affect on some during the bleak interwar years when many, especially intellectuals, considered it as a form of socialist utopia. The madness of Stalin, his thugs and the millions they massacred ony became known after WW2. But by the end of the 1940s the Soviet Union was an Empire to be feared, not emulated. The creation of welfare states was a reaction to the deprivations of war - not a result of a comparison to communism. World War !! was a great societal leveller. Those who had fought wanted evidence that they had been fighting for more than merely freedom.

[vinapu]

28 minutes ago, PeterRS said:

. The creation of welfare states was a reaction to the deprivations of war - not a result of a comparison to communism

And so was participation of communists in governments in some countries of Western Europe  right after the war ?

I'm afraid we are looking at the whole issue  knowing what happened later

[PeterRS]

6 hours ago, vinapu said:

And so was participation of communists in governments in some countries of Western Europe  right after the war ?

I'm afraid we are looking at the whole issue  knowing what happened later

Sorry @vinapu but I don't seem to be following you. Communisim was anthema to most post-war Western European governments. It had reached the peak of its influence around 1945-46. Then the Iron Curtain fell. As far as I am aware, only in Italy was there a sizeable Communist Party but it never gained power nor did it ever share power. Did communists actually particpate in any post war Western Eurpean governments - i.e. those outside the Soviet bloc?