In normal times, the world's major economies are a mixed bag. Some are up,
some are down, some are placid, some are in crisis. It's only at the
boom/bust extremes that everyone finds themselves in more-or-less the same
boat.
This is looking like one of those times -- and the boat is sinking. Japan,
for instance, is back in recession...
...while its debt continues to soar.
Brazil's economy has been shirking since April, and the decline is
accelerating. See Brazil
in free-fall mode. Get ready for terrible Q3 print, analysts warn.
Europe is descending into a combination of financial and geopolitical
chaos that might dissolve not just the eurozone but major parts of the
European Union, notably the free movement of people across internal borders.
See Europe
is sliding towards the abyss and the terrorists know it.
China pretends that it's still growing, but no one believes it anymore in
light of things like this: China's
Steel Industry Peers Into Abyss as Output to Plunge.
The Middle East civil war has now sucked France and China in alongside the
US and Russia. See Beijing
vows justice as ISIS kills Chinese, Norwegian hostages.
Even the US, which most of the world seems to consider an island of
stability, has soaring debt and a slowing economy. See Housing
starts just plunged to 7-month low and Retail
reality: another sign a recession and crash are imminent.
The lone bright spot is financial asset prices -- but market breadth has
deteriorated alarmingly. Most stocks are flat to down (in some cases down
hard) while the broad indexes are supported by just a handful of rising
issues. See Nifty-Fifty
becomes Fab-Five.
So why is the whole world simultaneously in financial/geopolitical crisis?
Because the whole world has been making the same set of mistakes. Armed with
unlimited monetary printing presses, most major countries have been operating
with the sense of omnipotence that flows naturally from the ability to create
money out of thin air. The US built a global military empire with borrowed
money and proceeded to bully the rest of the world almost randomly,
destabilizing the Middle East and stirring up resentment everywhere else.
Europe adopted a fatally-flawed common currency on the assumption that it
would paper over the resulting crises with new credit. China thought it could
build roads, airports and entire new cities with borrowed money, and that all
of those assets would magically generate copious free cash flow. And Japan
has avoided making the structural changes necessary to deal with an aging
population, simply borrowing and printing the yen needed to get through each
budget cycle.
In other words, for quite a while everyone was able to ignore the bit of
common sense that says "when you find yourself in a hole, the first
thing to do is stop digging." Instead they assumed that they could dig
forever because their "modern money" would always be there to bail
them out.
Now here's where it gets really interesting. The debate has shifted to
whether current policy has failed because it's based on false assumptions and
flawed models -- or because it wasn't pursued with enough enthusiasm. Since
no one likes to accept blame or give up power, the folks in charge will
almost certainly choose the latter explanation and give it one more go in
2016, bigger and better, shock and awe, NIRP, war on cash, QE for the people.
Toss those things into the current mix and you've got a year for the history
books.
