2016: Is It Gonna Be A Bad Year?

[Aberrict]

So yeah. It seems like we're off to a bad start:

• USA: Doing better than the rest, but growth has pretty much stalled out. Can the Fed prop the banks up again? Can Congress not be uselessly gridlocked during a crisis?
• China: Despite pumping in ungodly amounts of cash reserves and totally not worryingly state imposed rules to prop things up. The Chinese economy is coming off rails.
• EU: Multiple rounds of austerity has sent the European economies reeling with sky high unemployment.
• Middle East: Oil price has crashed. The youth unemployment is also sky high. Syrian Civil War straining neighboring states and Europe.
• BRIC: Were predicted as the rising engines of global economic growth
  
  • Brazil: Mired in numerous government and business scandals.
  • Russia: Cratering right along with the price of oil. Which its economy is so very reliant on.
  • India: Seems to be holding steady
  • China: See Above.

Let's go over the problems:

Oil


The price of oil has been sliding for quite sometime now. The falling price was first due to the growth of US shale gas/fracking operations and then by the Saudis throwing the pump wide open to flood the market to try and kill the US shale gas industry. This seems to be working as US fracking operations need very high initial investment to get the wells going, which means borrowing lots of money from commercial banks. The oil price (at this time $33 per barrel) is too low to support the initial investment and US shale companies have been going bust at a fairly alarming rate, with estimates of one half to to one third in danger of failing before 2017.

You might say that's to bad for oil workers, but shale companies going under doesn't effect me. Well...the problem for the US is that all the financing for shale drilling (fracking), which seemed like they would be big profits for banks a few years ago, may now go south in a big bad way. The default risk in the US energy sector is the highest since the Great Depression. US banking firms are already putting money aside to deal with collapsing investments, but depending on how big those loans are, the banks may be in trouble. You remember the last time US banking firms over-leveraged with insufficient collateral right? How'd that play out?

What do low oil prices mean for Saudi Arabia?The IMF has estimated that Saudi Arabia could go bankrupt by 2020 if oil prices do not recover. Right now, the riyal is pegged to the dollar, but that might not last. In order to plug the current gap, the Saudi's are even considering selling shares in Aramco, the state oil company, which is their equivalent to selling the family silver on the cheap. Civil unrest in Saudi Arabia is a nightmare scenario.

And then there's Iran. Who are back in the global oil market after the sanctions on them were lifted. Adding more supply into an already oversupplied market.

The good thing one might argue is that consumers are seeing lower prices at the pump, leaving them with more disposable income etc. which can increase consumption in the West - the 'traditional' motor of global of economic growth. Except it appears consumers aren't putting the add money back into the economy, but toward paying down debts or saving it.

The downside is that the collapse in price of commodities like oil, gas, iron and copper ore are no good at all for developing countries and others (sorry Canada) who rely on bulk commodities in order to make their budgets and economies move.

Europe


Oh? You thought they had figured out Greece's troubles? Yeah...they didn't.

While it may not be the catastrophe it would have been in 2010, a default in Greece would be a very nasty for the EU economy, the Euro project and the EU as a political/civic union, especially if you look at how many refugees they are processing. But it's no just Greece straining under problems.

The Italian banking system teetering and any bail out will be very expensive if it starting to topple. The 3rd largest bank suffered a bank run last week, and its shares are in a nosedive.

France, with only 0.3% growth in Q3 2015 is saddled with persistent high unemployment at 10.6% and youth unemployment at 25.7% and is currently led by the go-nowhere government of Francois Hollande, who is still stuck at 30% approval ratings even after the Paris attacks. The Front National, under Marine le Pen, is a serious contender now, and they are good news for no one.

Germany is still doing well. with higher wages, economic output and all kinds of indicators doing well. However, 1.7% GDP growth isn't exactly a gold star. What happens to Volkswagen (either the largest or second-largest company in Germany) after cheating on their car's emission testing is still to be seen. Plus, with the current migrant crisis, their politics could take a large wobble, especially if another Cologne-like event takes place.

In short, Europe's definitely not out of the weeds yet, may be pulled back into them, and what happens when they are is anyone's guess.

Plus, the current EU refugee crisis continues to roil the continent, costing much more than expected, the Schengen common border area may collapse, and it's causing more problems everywhere. The joint EU-Turkey solution is a joke.

China


Chinese stocks are in full free fall as I type. The cracks the CCP managed to paper over have started to show very clearly. A hugely inflated market, with over $28 trillion in debt, and probably even more in the opaque shadow banking system, and literal ghost cities full of empty buildings could be on the edge of some pretty horrid shocks.

With so much (western) capital now inside the Chinese market (due to lack of returns anywhere else), a collapse in China would be very bad for the global banking system. Plus, who would be left to export to? Mars?

Improving / making matters much worse is the Chinese state, which does everything from forcing shareholders to buy in a crashing market to injecting capital to fluffing numbers. The official growth figures for the last quarter are 6.7%, but who really knows at this point." The once-great hope of the global economy is cracking very badly. A hugely inflated market, with over 28 TRILLION $ in debt, with probably even more in the super opaque shadow banking system, and literal ghost cities full of empty buildings could be on the edge of some pretty horrid shocks.

With so much (Western) capital now inside the Chinese market (due to lack of returns anywhere else), a collapse in China would be very bad for the global banking system. Plus, who would be left to export to?

Improving/making matters much worse is the ruling CCP, which does everything from forcing shareholders to buy in a crashing market to injecting capital to fluf the numbers. The official growth figures for the last quarter are 6.8%, but who really knows at this point.

Wealth Inequality


Richest 62 people as wealthy as half of world's population, says Oxfam.

The vast and growing gap between rich and poor has been laid bare in a new Oxfam report showing that the 62 richest billionaires own as much wealth as the poorer half of the world’s population.

Timed to coincide with this week’s gathering of many of the super-rich at the annual World Economic Forum in Davos, the report calls for urgent action to deal with a trend showing that 1% of people own more wealth than the other 99% combined.

Oxfam said that the wealth of the poorest 50% dropped by 41% between 2010 and 2015, despite an increase in the global population of 400m. In the same period, the wealth of the richest 62 people increased by $500bn (£350bn) to $1.76tn.

The charity said that, in 2010, the 388 richest people owned the same wealth as the poorest 50%. This dropped to 80 in 2014 before falling again in 2015.

One address in the Cayman Islands houses 20.000 companies.

When Barack Obama criticised tax havens, he singled out one building on Cayman, Ugland House, which he claimed housed “12,000 corporations. Now, that’s either the biggest building or the biggest tax scam on record.” But Obama got it wrong – there are closer to 20,000 companies registered there, and 100,000 companies in Cayman as a whole. They include ones linked – or that have been linked in the past – to a bewildering array of British household names: Tesco, Sainsbury’s, BP, Manchester United – even the National Grid. In total, Cayman is home to nearly twice as many companies as people. Which is odd, because when I went to find them, there wasn’t much physical evidence of their presence. But they’re here all right, on paper.

There might be as much as 21 Trillion Dollar hidden offshore.

A global super-rich elite has exploited gaps in cross-border tax rules to hide an extraordinary £13 trillion ($21tn) of wealth offshore – as much as the American and Japanese GDPs put together – according to research commissioned by the campaign group Tax Justice Network.

James Henry, former chief economist at consultancy McKinsey and an expert on tax havens, has compiled the most detailed estimates yet of the size of the offshore economy in a new report, The Price of Offshore Revisited, released exclusively to the Observer.

He shows that at least £13tn – perhaps up to £20tn – has leaked out of scores of countries into secretive jurisdictions such as Switzerland and the Cayman Islands with the help of private banks, which vie to attract the assets of so-called high net-worth individuals. Their wealth is, as Henry puts it, "protected by a highly paid, industrious bevy of professional enablers in the private banking, legal, accounting and investment industries taking advantage of the increasingly borderless, frictionless global economy". According to Henry's research, the top 10 private banks, which include UBS and Credit Suisse in Switzerland, as well as the US investment bank Goldman Sachs, managed more than £4tn in 2010, a sharp rise from £1.5tn five years earlier.

The burden of bailing out the last crisis has already fallen on the poorest, both globally and in western societies. How much more do we have to give? Or are we willing to take it up the ass again? The lack of consumption isn't doing the global economy any good and another hammer blow could see significant numbers of people pushed out of the middle class.

So. Are We In A Crisis?

The consensus seems to be that we're not....yet .... but all the ingredients for a second global Great Recession are in place. It all depends which of the wobbling dominoes falls first and if we can store them up.

The Royal Bank of Scotland has some...disheartening advice for optimists:

Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small.

Austerity is entirely self-defeating and cannot work


Why the American Housing Bubble led to the Eurocrisis led to the China Crisis:


edit: Added two videos for those who want a more depth exploration of the current structural problems existing in the global economy

[Gamdwelf]

It's all about what you make with the time you have.

[Roostercogburn]

It's gonna be good for me.

Getting paid more
Sweet condo
Getting married
Getting an agent.


2016 will be freaking awesome. I will have a bad time like how Bill Gates had a bad time in the recession.

[Archon14]

As far as movies go, this year is going to be amazing.

[schwarzkopf]

It's all about what you make with the time you have.

If only that were true. In reality it is all about what you make with the money you have for most people.

But yeah - the world is pretty much screwed because of Extremists in the Middle East, Europe and the USA.

There is no will to change, so no change will occur.

The only good thing this year is Legion.

[zenkai]

Getting married at the end of this month, going to be a good year for me until election time

[GennGreymane]

Well the forecast is not lookin good, but I saw sun this morning with no clouds in the sky. Who knows, its early still

- - - Updated - - -

Getting married at the end of this month, going to be a good year for me until election time

Mazel tov!

[Lightwysh]

Election years are never good.