Most economists and Wall Street types are reluctant to publicly admit the global economy is in a recession. Their reams of conflicting data are sending mixed messages. But an honest look at key events and the behavior of financial markets solidifies the view that the global recession we’re probably already in, is unavoidable. Let’s analyze some of the reasons behind this.
1) The Fed is out of tricks. When it comes to manipulating financial markets in the name of economic security, nobody matches the Federal Reserve’s prowess. During the past few years, the Fed has engaged in financial gimmickry of such epic proportions that angry calls for ending its existence have been voiced from sea to shining sea. The Fed’s Treasury purchases (POMO) and monetization of debt (quantitative easing) might have delayed the reckoning day, but have these programs really solved America’s long-term problems? The Fed’s latest shift from short-term to long-term debt (Operation Twist) is tantamount to taking money from your right-hand pocket and putting it into your shirt pocket. The Fed is running out of time and out of tricks. Ben Bernanke finally has admitted what the general public has known all along: The job situation is a “national crisis.”
2) The stock market says we’re already in a recession.The National Bureau of Economic Research and its leading economists still deny the U.S. economy is in a recession. Apparently, their slide rulers haven’t yet confirmed it, so they need a few more quarters before issuing a press release. Meanwhile, the stock market, which is a leading indicator of economic activity, is screaming “recession.” Large-company stocks within the S&P 500 have fallen almost 18% since July. Bulls argue this still is shy of the 20% threshold that confirms a bear market, but even so, mid-cap stocks and small caps already have entered bear territory. Today’s stock prices reflect expectations about future earnings, which in turn are connected to the future state of the economy. Expectations are rightfully low.
3) Greece has set the tone for Europe (and maybe the rest of the world). How many financial targets will Greece continue to miss before forecasters stop regurgitating its false numbers? When will Greece stop embarrassing itself with financial projections it knows aren’t true? Greece’s 2011 deficit was projected to be 8.5% of its GDP but came in almost 1.69 billion euros above its original targets. Next year, Greece is aiming for a deficit that’s 6.8% of GDP. With the country engulfed in civil protests, job strikes and general chaos, how realistic are its 2012 projections? Financial bets for Greece to succeed are a long shot. The country’s economic projections are no longer based upon realistic assumptions, but hopes for garnering more bailout money and calming hostile markets. Ultimately, Greece merely is a reflection of the entire EU region — a place where financial aspirations don’t match reality.