The Global Perfect Storm

I began talking about the coming storm about 8 months ago and thought a collapse was imminent. Certainly for Greece it was. However the proverbial can was and still is being kicked down the road. Since then, Greece has been shoved under the carpet as Spain and Italy come into focus as much larger fiscal problems. The prediction is that Greece will most likely exit the Eurozone which is another side of the financial disaster. All efforts are being made to keep the euro together but it cannot be done without creating a banking union which will severely impinge on the sovereignty of each nation in the zone. The break up of the euro or banking union? Those are the only two choices according to leading economists and the ECB is pushing for fiscal union but Eurozone nations are pushing hard against it. The road is bound to run out as NYC Professor Nouriel Roubini points out in this article from the Business Insider.

"So, it's the perfect storm! You could have a collapse of the Eurozone, a U.S. double-dip, hard-landing of China, hard-landing of emerging markets, and a war in the Middle East. Next year could be a global perfect storm."

"So you're predicting a scenario that is much worse than 2008?"

ROUBINI:

"Well, it's much worse, because like 2008 you have an economic and financial crisis, but unlike 2008, you're running out of policy bullets. In 2008, you could cut rates from 5%-6% down to zero, do QE1, QE2, QE3, you could do fiscal stimulus up to 10% of GDP, you could backstop a guarantee bailout of banks and everybody else. Today, more QEs are becoming less and less effective because the problems are of insolvency not illiquidity. Fiscal deficits are already so large that everybody has to cut them, not increase them. And you cannot bail out the banks because 1) there is political opposition to it, 2) governments are near insolvent and they cannot bail out themselves, let alone bail out the banking system.

"So the problem is that we are running out of policy bullets. We're running out of policy rabbits to pull out of the policy hats compared to 2008.

"So if a freefall of markets and economy does occur, you don't have any more of a safety net of enough policy bullets to try to absorb the shocks, because we've been spending the last 4 years using 95% of those bullets.  So we are running out of bullets."

http://www.businessinsider.com/roubini-perfect-storm-2012-7-a?utm_source=twbutton&utm_medium=social&utm_campaign=moneygame