There is no way out, this time!

The 3 down waves from here on.

After the first down move, the global equities try to fight back, but still ended down as the 1st wave. The stock market will make effort to reverse the downward move, with the belief that the companies are generally doing well and have sound reserves. The key obstacles facing the move are:

1. With high income disparity, or GINI coefficient, especially in the US, there is severe dislocation of consumption, where few rich consumes, while large pool of poor struggle to keep up with their debts, thus weakening the general consumption. Companies are holding back both their investments and staff employment given the weak general demand, except for sectors that are exporting to emerging economies.

2. The emerging countries are now experiencing a delayed effect of weakening demand, where the waves of printed money from US two quantitative easing (and to lesser extent the EUR) hit their shores. It pushes up assets investment, followed by general demand and confidence, but are now faced with high inflation (consumption and assets), and strengthening emerging markets' currencies. They are forced to slow down by withdrawing their fiscal and monetary stimuli. The effect will soften emerging market growth which will lead to a slow down of demand for US and European goods.
3. In the West, due to long term 'addiction' to dole and other monetary support, the unemployed in the developed world did not withhold their spending nor accept lower salary jobs during the good times, thus the pool of unemployed are growing larger by the days, but due to misrepresentation of the unemployment data (where the focus is on recent unemployed workers). The long term unemployed (more than 99 weeks in US), do not appear as unemployed. As such, there is a growing hidden unemployed that is weighing down the economy as they are no longer able to consume. Some gave up living on their own, but move in to stay with their parents while others live in their cars/caravans.
4. The Western economies are further dragged down by their own aging population (where the youngest baby boomers are now at 52 and the oldest are 62 years old, they are entering retirement in large numbers), the demand pattern has changed and the inversion of the population structure is putting stress on the fiscal stability of the government given the growing demand for more free and subsidised social benefits. The unemployed skill sets were geared for growing population where there is high demand for goods and entertainment services, but now, the biggest demand is for medical care, which cannot be matched easily without high costs of training involved. The governments have already overly deployed their financial capacity into rescuing the financial institutions, and are now left with growing high debt to GDP ratios. Now there is limited scope of government financing for skills retraining programs nor national infrastructure investments, as big surplus nations are slowly avoiding the FED issued bonds. Further 'pumping' debts risks pushing up the interest rates, which will adversely push the debt/GDP ratios to even higher. Greece is one extreme example of nations that is reaching its tipping point. This can cause the interest rate spiral upward to unsustainable level. The infrastructure investment would have helped to create new business opportunities which also translates into improving employment but the needed money was 'hijacked' by the banks when FED 'rescued' them, which ends up bankers paying themselves even bigger bonuses, after they were rescued .
5. Banks are paralysed by the 2008 collapse. After transferring toxic assets to FED for money, banks reinvests their money into FED risk-free bonds. Banks are very cautious of lending money to businesses where they are exposed to possible business failure, thus limiting the growth or expansion of new businesses. Banks mainly rollover the existing debts to maintain their balance sheets status quo.
6. Political infighting in the developed world is also holding back the necessary economic policies* to revitalise the global economy, but instead, strangle it with the legal and illegal corrupt practices that widen the GINI further.

In short,
globalisation and political maneuvering have resulted in high GINI coefficient which weakens the global sustainable consumption level. The developed countries' aging population structure is now further weakening the global economic system. As it is, the developed countries' fiscal situation is already at its weakest point. The emerging economies are not able and are not of the equivalent size to counter-balance the weakening Western economies and there is no collective political will to solve the global economic problems, where the mass-media brain washing machines are controlled by the rich, so as to allow them to continue amass wealth at the expense of the poor and ignorant.

If there is no change of governmental policy direction, there is only one outcome, breakdown of society so that wealth is redistributed by force, instead of through the normal functioning of the economy.

Co-authors: Art Lim and Tng Yong Chuan

* economic policies needed:

1. reduce the GINI coefficient through appropriate tax structure; inheritance tax, progressive tax and banks' tax (in return for the central banks' financial injection during the 2008 crisis) to support fiscal budget and improve consumption.

2. invest in sound infrastructure projects that reduce energy consumption, increase mobility (high-speed trains between cities, re-urban development of mass rapid transport system, internet fibre-optic lines, continental rail lines, efficient medical systems) and I.T. infrastructure (national, company and even individual levels) that enhance productivity of the economy. Each country has to look into investing in more targeted industries that can increase their local employment

3. allow emerging countries' investment into Western countries' companies so that their is sufficient momentum of global economic growth. Western economies are trying to 'protect' their national interests by restricting such investment (which hampers some of the sound but financially weak western corporations' ability to grow out of this crisis). Instead, westerners insist that emerging countries hold their printing press papers (or known as government bonds) which depreciates through money printing or quantitative easing mechanism.

4. temporarily subsidise consumption in food, healthcare, household items for the poor so as to tide over the recessionary phase while co-opting the unemployed into some of the national projects

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