There's been an adage that many have followed over the years, "when the US economy sneezed, the rest of the world caught a cold". This is not the case this time. The rest of the world economies have matured, developed and grown up. If you take a look at the CIA World Factbook, other than the US 14-15 Trillion Gross World Product, the rest world sits at roughly 62 Trillion or 76% of Gross World Product. Looking deeper into the numbers, worlds GDP real growth rates peaked in 2011 at 3.8%, followed by lower numbers in 2012 at 3.1% and in 2013 at 2.9%. The slowing growth is evident.
Signs are out there already, suggesting that David Levy, might be correct. European Banks are still stuck with trillions of dollars with bad loans from the financial crisis in 2008. To rid banking problem, European recently went negative interest. This will encourage European Banks to swap or write off bad debt, while loaning new loans and earning a reward visa via the ECB. However, the burden of debt from the 2008 financial crisis is enormous. It will take a lager intervention, such as the ECB purchasing each euro-zone's members major banks bad debt. No one sees this happening, since the ECB has been reactionary since 08, waiting to catch the falling porridge before the mess heaps over and causes a bad spill. However, Eurozone problem is only the beginning of problems.
Another situation that is concerning is BRIC nations, Brazil, Russia, India, China. These countries have been highly dependent on consumer spending in developed countries such as US, Europe, and Japan. With US as the only growing developed country, we are seeing a slack in demand and an overabundance in supplies from the BRICs. Over supplying is a big problem for the BRICs. These nations have seen vast increases in standard of living. Without a growing demand from developed economies, none of these nations will survive too long. What's really scary is the means at which these businesses are spending there capital. We have skyline cranes building skyscrapers everywhere. Al-Waleed, chairman of Kingdom Holding Company ( KHC ), is building the largest building in the world, along with a Kingdom City marked at $20 Billion US. In Miami, Fl , foreigners are buying up condos like kids in a candy store, 1,2, 3 is not enough. From anyone who studies financial history, it is a know fact that every major recession has been proceeded by a Florida housing boom. It also known that in the US, colleges are spending money like there's no tomorrow. There is a crane, or 8, at every major institution in the US. Perhaps the education bubble will also set this recession on fire. I too agree we are only a year or two away from another major melt down.
Chart above shows how US markets are running up a mountain while the rest of the world has yet to break above the 2008 financial bubble highs.
Federal Reserve likely to end QE stimulus program in October
Minutes from June policy meeting reveal likely October end date even as officials say US economy is not out of the woods. "If the economy progresses about as the expects, warranting reductions in the pace of purchases at each upcoming meeting, this final reduction would occur following the October meeting," the Fed said in minutes released Wednesday from its June policy meeting.
Launched in 2009 in the heat of the financial crisis, QE and its successors are the largest financial aid scheme in history. In three rounds, the Fed has bought about $4tn of Treasury bonds and mortgage-backed assets. It held about $750bn of those assets before the recession bit.
Wrapping up the latest, and last, round of economic stimulus, known as QE3, the Fed is now buying $35bn per month in assets, down from a peak of $85bn. It plans to reduce the purchases in increments at its next three policy meetings, ending it in October.
Controversial from the outset, QE was designed to keep long-term interest rates down and encourage investors to back stocks or corporate debt in order to stimulate the economy. Stock markets have hit record highs under QE yet the unemployment rate remains high and there are continuing signs of weakness in the wider economy.
Senator Rand Paul, a long-time critic of QE and a potential Republican presidential candidate, has worried that the US’s economic recovery is “illusory”.
Last year, Andrew Huszar, a senior fellow at Rutgers business school and a former manager of the Fed’s mortgage-backed security purchase programme, called for an end to QE in an article for the Wall Street Journal. He said it had helped Wall Street far more than Main Street. Critics in Congress and elsewhere have also worried that QE will create another financial bubble or excessive inflation.
Fed chair Janet Yellen has long made clear, like her predecessor, Ben Bernanke, that she intends to wind down the program as and when the economy is strong enough to go it alone. An unusually harsh winter knocked the recovery off course, but there have since been signs, including strong job growth, that the effects of the bitter cold have dissipated.
In the minutes, Fed officials pointed out that “both long- and short-term unemployment and measures that include marginally attached workers had declined".
"Most participants projected the improvement in labor market conditions to continue, with the unemployment rate moving down gradually over the medium term," the minutes concluded.
However, the minutes show some Fed officials are worried about risks in the financial markets, and whether “recent trends in financial markets might suggest that investors were not appropriately taking account of risks in their investment decisions."
US stock markets largely shrugged off the end of a program that some argue has driven stock prices to unsustainable highs. Gus Faucher, senior economist at PNC Financial Services Group, said investors were looking to the future. “There’s not a whole lot in the minutes that is surprising. Expectations for the short term are in line. It looks like the first quarter slowdown was a one-off and the second will be much stronger.”