Global Recession Looms – Result of Spending & Debt

May 3, 2013 05:49
Global Recession Looms – Result of Spending & Debt

Every facet of global manufacturing is slowing …


These two articles from different sources show that the world economy is headed for troubled waters and perpetual spending and the resulting debt is the cause. If printing money worked every country could just give all its citizens a hundred million dollars and everyone would be rich. ~ Editor


By Mike “Mish” Shedlock at MISH’S Global Economic Trend Analysis

The JPMorgan Global Manufacturing PMI shows Global manufacturing growth slows to near-stagnation.

At 50.5 in April, the JPMorgan Global Manufacturing PMI™ Crushed-Car-By-UCFFool-440x330– a composite index* produced by JPMorgan and Markit in association with ISM and IFPSM – signalled expansion for the fourth straight month. The rate of expansion decelerated slightly during April, meaning that growth so far in 2013 has remained, at best, only marginal.

Japan, South Korea, Indonesia and Vietnam were the only nations to report a faster rate of improvement in operating conditions during April. Europe remained the main drag on the global aggregate, with the euro area contracting at the sharpest pace in the year-to-date and the UK stagnating.

The US PMI fell sharply to signal the slowest growth for six months. There was further stagnation in neighbouring Canada, while Mexico expanded at the weakest pace in 20 months in Mexico. Growth of manufacturing also slowed to near-stagnation in China, Russia, India and Brazil.

Global PMI April vs. March

Global Manufacturing

coming-soon-graffitiEvery facet of global manufacturing is slowing and global growth will follow. A global recession is certainly baked in the cake, if indeed a recession is not already in progress.

Mike “Mish” Shedlock


Now consider this:

Debt, Growth, and the Austerity Debate

The New York Times, April 25, 2013

In May 2010, we published an academic paper, “Growth in a Time of Debt.” Its main finding, drawing on data from 44 countries over 200 years, was that in both rich and developing countries, high levels of government debt – specifically, gross public debt equaling 90 percent or more of the nation’s annual economic output – was associated with notably lower rates of growth.

……. Our 2010 paper found that, over the long term, growth is about 1 economy-bad-shape-270x300percentage point lower when debt is 90 percent or more of gross domestic product. The University of Massachusetts researchers do not overturn this fundamental finding, which several researchers have elaborated upon.

The academic literature on debt and growth has for some time been focused on identifying causality. Does high debt merely reflect weaker tax revenues and slower growth? Or does high debt undermine growth?

Our view has always been that causality runs in both directions, and that there is no rule that applies across all times and places. In a paper published last year with Vincent R. Reinhart, we looked at virtually all episodes of sustained high debt in the advanced economies since 1800. Nowhere did we assert that 90 percent was a magic threshold that transforms outcomes, as conservative politicians have suggested.

We did find that episodes of high debt (90 percent or more) were rare, long and costly. There were just 26 cases where the ratio of debt to G.D.P. exceeded 90 percent for five years or more; the average high-debt spell was 23 years. In 23 of the 26 cases, average growth was slower during the high-debt period than in periods of lower debt levels. Indeed, economies grew at an average annual rate of roughly 3.5 percent, when the ratio was under 90 percent, but at only a 2.3 percent rate, on average, at higher relative debt levels.

debt_spiral-300x182(In 2012, the ratio of debt to gross domestic product was 106 percent in the United States, 82 percent in Germany and 90 percent in Britain – in Japan, the figure is 238 percent, but Japan is somewhat exceptional because its debt is held almost entirely by domestic residents and it is a creditor to the rest of the world.)

The fact that high-debt episodes last so long suggests that they are not, as some liberal economists contend, simply a matter of downturns in the business cycle.

In “This Time Is Different,” our 2009 history of financial crises over eight centuries, we found that when sovereign debt reached unsustainable levels, so did the cost of borrowing, if it was even possible at all. The current situation confronting Italy and Greece, whose debts date from the early 1990s, long before the 2007-8 global financial crisis, support this view.


In short: many countries around the world have extraordinarily high public debts by historical standards, especially when medical and old-age support programs are taken into account. Resolving these debt burdens usually involves a transfer, often painful, from savers to borrowers. This time is no different, and the latest academic kerfuffle should not divert our attention from that fact.

Carmen M. Reinhart is a professor of the international financial system, and Kenneth S. Rogoff is a professor of public policy and economics, both at Harvard.

In an appendix to this op-ed essay, the authors further defend their findings that high public debt is associated with lower economic growth. [emphasis added]

H/T John Mauldin


Also please consider:

20 Signs That The Next Great Economic Depression Has Already Started In Europe

Has Obama Already Bankrupted America?

Obama Has Stolen $5.3 Trillion From Our Children In Order To Make Himself Look Good

Debt quotes

Obama’s Achievement – Gov’t Has Become Gigantic Wealth-Transfer Machine

37 Statistics Which Show How Four Years Of Obama Have Wrecked The Economy

102 MILLION Jobless in U.S. – Only 12 Million Counted as Unemployed

Obama’s “green” jobs model – Spain’s unemployment highest in 17 years

9/12 – the Manhattan attack that gave us Obama

The Corruption of America

Obama’s America: One Big, Gigantic Soup Kitchen

Cloward-Piven Strategy Working Perfectly — in Europe

Yes he is the food stamp president! And the hand out president

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