September 5, 2012 - Selected Interest Rates Around the World – A Tale of Wow: Pictured above are four key interest rates for the worlds 13 biggest economies, with total GDP (Gross Domestic Product) of $55 trillion. The blue bars reflect % change in GDP from the prior quarter. The red bars are interest rates set by the central banks; in the case of the USA that is the FED. The pea green bars reflect official government levels of inflation. The purple bars present government published unemployment.
Government statistics are notoriously understated. For example, the U.S. wants to keep a low inflation rate because many entitlement payments (Social Security, Medicare, et. al.) are based on these figures. Additionally, they want to show low unemployment, so they can get reelected. The U.S. unemployment rate, at 8.3% (see the 3D Graphic below), is probably at least 2 or 3 times higher than that. Nevertheless, the graph above, presents a rough comparison between the major economies of the world.
The graph below reflects U.S. Unemployment over the last 12 years and is current through July, 2012 (the latest figures available). Note the trend, from the 2006 low to the recent highs. This clearly shows the U.S. economic financial disaster in 2008 and 2009. Now, we are in the “Recovery That Wasn’t”:
Back to the Global Perspective, look at the tall purple bar representing Spain’s unemployment. At over 20% this is of grave concern to the EU and reflects serious economic difficulty; which does not bode well for the Euro. The “PIIGS” nations; of Portugal, Ireland, Italy, Greece and Spain; are in serious financial and economic trouble. Greece’s two-year bond recently yielded over 80%, showing that bond buyers are betting on a default. All bonds are eventually settled, either by payment or default. In the case of the PIIGS, it looks like the only option is a default. If that happens, the Euro and EU will be no more. Because the EU is such a huge economy, this event could be the trigger to Great Depression II.
I will touch briefly on the higher bars in this chart. The Euro Zone may be about to collapse, with the unemployment rate in Germany, France, the UK, Italy and Spain at dangerous levels. Get out of the Euro and dollar and into more stable currencies or hard assets such as gold. The Eastern Nations are growing strongly with the GDP bars of China and India showing phenomenal growth. China is slowing down, which further makes the case for a serious slowdown in the world economies. Every bar for Japan is at zero except unemployment. Japan is what the U.S. will look like, economically, over the next 10 to 15 years, i.e., a long period of slow or negative growth. Inflation is out of control in Russia and India, and off grave concern in Brazil and China.
Interest rates are at or near zero in the U.S., the EU, Germany, France, the UK, Italy, Spain and Canada. This is an effort, by these countries central banks to increase growth. All this does is encourage the “Carry” trade, which is where the banks (e.g. BofA) borrow from the central government at close to zero %, and buy government bonds with a guaranteed return of 2 to 5%. Why should a bank lend money to you, if they can enter a, virtually, no risk trade?
The future of the world economies and financial markets are headed down hill very quickly. This graph shows the seriousness of the current economic downturn, soon to morph into Great Depression II. The ramifications of this trend are extremely dangerous for all of us.
The Master of Disaster