Chance of 2012 US recession tops 50%

November 15, 2011 07:40

European debt problems in Greece and Italy could drag down the US economy. Italy’s $2.4 trillion debt is a ruinous milestone which could trigger sovereign bank failures. Promised austerity measures will impact trading. Europe accounts for 21% of US exports.

Reuters reports:

“A European sovereign debt default may well sink the United States back into recession,” wrote Travis Berge, Early Elias and Oscar Jorda in the latest San Francisco Fed Economic Letter. “However, if we navigate the storm through the second half of 2012, it appears that danger will recede rapidly in 2013.

Phoenix Capital Research says:

The Great debt Implosion will hit Europe within the next 14 months and likely much much sooner. When it dues, we will see numerous debt defaults and restructuring on both the corporate and sovereign levels. We’re also very likely going to see significant portions of the European banking system collapse “Lehman-style” along with subsequent HUGE losses of capital.


So if the EU banking system/ economy collapses, the global economy could enter a recession just based on that one issue alone (ignoring the other issues in China, Japan, and the US).

Business Insider reports that Nouriel Roubini said:

When it comes to Europe, frankly, he said, “Our view is very bearish.” Europe is a slow motion train wreck and there’s a “significant risk of a Eurozone breakup.” This doesn’t mean Greece and Portugal leaving, it means Spain and Italy ultimately leaving as well, which would mean the whole thing is toast.

And if the Eurozone breaks up “everything around the world goes sour.”

The dominoes are beginning to fall. John Browne, EuroPac at Business Insider:

This would lead to Phase Two of the collapse: a renewed and far larger banking crisis. This, in turn, could bring stock markets tumbling and threaten major institutional investors, including politically sensitive pension and insurance companies.

Meanwhile, the cascading banking crisis would likely push Europe into a severe recession, even a depression.

Phase Three would be a restructuring or dissolution of the euro and possibly a stampede into the US dollar, sending its price and US Treasuries temporarily upwards.

Reuters wraps up:

Last week the Federal Reserve’s influential vice chairwoman Janet Yellen warned on the threat from Europe, saying governments there need to take forceful steps to contain the crisis or risk substantial damage to the United States.

Even Warren Buffett thinks there is big trouble in the EU:

Larry Glazer with Mayflower Advisors explains:

On Bloomberg – Jim Grant regarding the European Central Bank’s response to the sovereign-debt crisis, ECB policy, Fed policy, central bank printing, and farmland.

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