Wednesday, April 29, 2015

Frightening Economic News From Europe

For better or worse, the world economy is tied together. Thus what happens in Europe or China is indeed of importance here in this nation. And what is happening in the European economy is frightening indeed. This from The Telegraph:

Here’s an astonishing statistic; more than 30pc of all government debt in the eurozone – around €2 trillion of securities in total – is trading on a negative interest rate.

With the advent of European Central Bank quantitative easing, what began four months ago when 10-year Swiss yields turned negative for the first time has snowballed into a veritable avalanche of negative rates across European government bond markets. In the hunt for apparently “safe assets”, investors have thrown caution to the wind, and collectively determined to pay governments for the privilege of lending to them.

So Europeans are expecting such a bursting bubble in their economy that they are willing to invest money and lose several percent just for the guarantee that, at the end of the time period, the majority of the corpus will still be there. That is chilling, particularly when one realizes that the European Union members are, collectively, our largest trading partner. Not only does this mean trouble on the economic horizon generally, with the cost of borrowing so low, it also means that European stock markets will be seeing a bubble forming, making any potential downturn even worse. The great European experiment in socialism may well be coming to a cataclysmic end, though you can bet your bottom dollar, literally, that the US under Obama will race to shore them up for awhile. It is not a good idea, but we may be looking at a real depression otherwise. China's economy, the other big world driver, is likewise built on smoke and mirrors. Honest to God, this is 2005 all over again, only this time there isn't enough money in the world to prop up Europe, let alone Europe and China, if they both go belly up at the same time.

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