Looks like I have grossly underestimated the creativity of the money printers, or rather, Western central bankers, the rich and the self-serving politicians.
US FED printed USD1.5 trillions with QE1 and USD0.6 trillion with QE2 to support the US government deficits of USD1.3 trillion in 2009, USD1.2 trillion in 2010 followed by USD1.5 trillion in 2011. With such massive Keynesian's and Monetarist's interventions, US politicians believed that they can continue to fill their pockets with money together with the bankers and the rich, assuming that all things will then go well.
Europe is more moderate in their approach, but unfortunately, the Goldman Sachs helped Greeks previous government hide their debts through a complex financial structure of deficits, which seemed to look like healthy government budgets year after year, until, the new government opened up the can. Well, it turned out to be a can full of worms, that is, borrowings (deficits) far beyond a small Greek's economy can manage.
Northern Ireland is not far from Greece, as their exposure from sky-high property prices had collapsed, causing all major Ireland banks to topple. Irish government printed money to rescue the banks, running up high national debts (with 3 years of high deficits). Portugal is suffering to a lesser extent from their own generous welfare system which causes ever increasing deficits. Italy is not much different from Portugal, except that they have a larger economy which allow her to carry higher deficits (120% of their GDP), but the financial market now doubts these governments' ability nor their commitments to rein in their deficits.
China stepped up with a USD850billions capital expenditure which helped to keep the global economy from toppling over in 2009 till 2011 where China is now faced with ever increasing inflation of 6.5% in July 2011. China is stepping on the brakes on her economy through 5 rounds of interest rate and 20 rounds of reserve requirement hikes.
Nevertheless, the economic giants of the West are too big to be propped up, and most of the money were not going into productive investments and development. Instead, it only provides cash for the banks (in exchange of toxic mortgage papers) and props up the rich. The banks and the rich hoard the money within the financial papers and emerging markets assets, leaving the small and medium corporates strangled. As a result, instead of economic recovery, the global economy now teeters on the brink of a great recession.
Real Jobless rate (adults who are able, but are not able to find a job) continues to climb. Official jobless rate only captures data of people who report their jobless status so that they can collect dole, but after certain number of weeks (depending on each countries' policy), they no longer report their jobless status as they are no no longer entitle to dole.
When real unemployment continues to climb, property prices continue to fall, businesses continue to fail as many other businesses depend on property market growth. US is now entering into a economic spiral downward. As GINI widens, US economy weakens as middle income group has been squeezed, causing further fall in demand.
Where does the global economy stand now? It is very much the same chart that I put up 3 years ago, except that it was stretched out by the government monetary and fiscal interventions after interventions.
The western economies have also used up almost all their credibility, thus affecting global confidence throughout the world. This is the beginning of the Great Depression II. The details of the move will be re-chart in the next blog with explanations for the projection.
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