Common Sense Living

The One Foreign Import To Worry About: Economic Depression

While President Donald Trump worries about cheap foreign imports from China, there is a very expensive foreign import heading our way:  Economic Depression!

the-great-depression

American’s today, much as they did in the 1920s, believe we are immune to economic problems overseas.  The truth is our economies are much more interconnected today than they ever were during years past.  What happens over there DOES impact us here, and there is a tsunami making its way across the oceans!

TURKEY

Inflation is now running at a 25% pace in Turkey.  Inflation has hit 25 Percent in Turkey

The Turkish Lira is undergoing a currency crisis, with its value dropping 30% when compared to the US Dollar (which is also dropping in real terms).

This level of inflation is not resolvable without raising interest rates to levels that would cause them an economic depression.  Given the political volatility in that part of the world, that’s not the place you want to have a depression!

ITALY

Italy, still reeling since the economic crisis a decade ago, is squaring off to go head-to-head with the European Union.  Italy Has No Future Outside of the Euro Zone

The EU is basically telling Italy to cut its budget deficit, or face the consequences from the EU.  It’s unknown what exactly those consequences are, short of war, but the posturing is one where if Europe wins, Italy goes into economic depression.  And if Italy wins and keeps running deficits, they eventually lose along with all of Europe.

Major currencies today are backed by government debt.  The EU is in the process of losing that backing from Great Britain with the “Brexit”.  If Italy chooses to save itself, a highly likely outcome given their elections, it’s really bad news for the Euro!

CHINA

The entire Asian region’s economy is tightly linked to China, and trade war impacts are starting to take their toll on global supply chains.  Trade War Could Dent China’s Domestic Consumption, Dragging Down The Rest Of Asia

Consumer demand for Chinese goods has been slowing for most of 2018.  This has been reflected in the Chinese stock market, with the Shanghai Composite Index falling 30% from January through October this year!

VENEZUELA and ARGENTINA

Both countries continue to experience severe inflationary trouble.  Although Argentina received a $50 billion IMF bailout in June, the situation is still precarious, while all they did was buy some time before their currency collapses.

IMPORTATION OF ECONOMIC PROBLEMS

There is an increasing chorus of economies around the world undergoing an increasing amount of stress.  One by one, we are seeing currencies fall, or worse, fail.  As those currencies fall, we see them run to the dollar, further strengthening the dollar against those currencies.  This in turn puts more pressure on yet other currencies.

This situation is PRECISELY what happened in the late 1920s.  Combined with a stressed banking system in the United States, eventually, even the US economy caved to the pressures.

IS OUR BANKING SYSTEM WEAK?

According to this Bloomberg article from Friday, yes, the US Banking System is weak.  Over 40% Of Top Banks Fail To Satisfy Fed In Risk Management

What’s interesting is that I saw this article Friday on Bloomberg, but I am unable to find it today, even with their search.  Fortunately, the site I link to here picked up a copy prior to Bloomberg removing theirs, and still references Bloomberg.

Wondering if someone at the Fed doesn’t want the bad news published?  The last thing they really want is for the world to suddenly realize that nothing has really been fixed since the last crisis, and therefore the upcoming crisis will be even worse!

 

 

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