Société Générale has advised clients to be ready for a possible “global economic collapse” over the next two years, mapping a strategy of defensive investments to avoid wealth destruction.
In a report entitled “Worst-case debt scenario”, the bank’s asset team said state rescue packages over the last year have merely transferred private liabilities onto sagging sovereign shoulders, creating a fresh set of problems.
Overall debt is still far too high in almost all rich economies as a share of GDP (350pc in the US), whether public or private. It must be reduced by the hard slog of “deleveraging”, for years.
“As yet, nobody can say with any certainty whether we have in fact escaped the prospect of a global economic collapse,” said the 68-page report, headed by asset chief Daniel Fermon. It is an exploration of the dangers, not a forecast.
Under the French bank’s “Bear Case” scenario (the gloomiest of three possible outcomes), the dollar would slide further and global equities would retest the March lows. Property prices would tumble again. Oil would fall back to $50 in 2010.
Governments have already shot their fiscal bolts. Even without fresh spending, public debt would explode within two years to 105pc of GDP in the UK, 125pc in the US and the eurozone, and 270pc in Japan. Worldwide state debt would reach $45 trillion, up two-and-a-half times in a decade.
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Such cheery news. A self fulfilling prophecy no doubt.
mid island mike
Well this is just great news, if true (sarc off) For sure I am hanging onto my gold Maple Leafs….I mazy really need them in future.
“Mr Fermon said junk bonds would lose 31pc of their value in 2010 alone.”
31% ??? That’s a pretty exact, if not arrogant, prediction. It’s like something Al Gore would say about global warming.
If we learned anything during this crisis it is that nobody really “knows”. Nobody truly understands what is going. Life is risky and governments don’t reduce risk they tend to exacerbate it with unpredictable political risk.
Therefore the best solution is to keep as much money as we can away from governments and make our own decisions. Anyone taking Stephen Harper’s advice a year ago about a lot of great buying opportunities in the stock market would now be up over 20% if they had simply bought the TSX index and didn’t pay any attention to the doomsdayers and “experts” like Mr Fermon.
And watch out for those Ponzi schemes.
Saving is saving and gambling is gambling. There’s only trouble when people confuse the two. When you put money in the stock market, you have no idea whether it’s going up or down, regardless of how much “research” you do. Also, unless you are doing something illegal, it’s virtually impossible for you to do anything to affect the direction of the stock price. Thus, you are gambling.
There’s nothing wrong with the global financial system, just the people in it. The main people suffering are:
1) Those who bought houses they cannot afford in the long run
2) Those who over-invested in derivatives they don’t understand
3) Pensions etc who did a bit too much gambling (stocks, derivates) and not enough saving (GIC’s, government bonds)
The housing crisis has not affected South Africa or Latin America because there are restrictions on securitizing mortgages. The Chinese economy may suffer in the short term but the Chinese people will not in the long run because they have nearly a 50% saving rate while Americans have a 0% saving rate.
Basically, there will be no global collapse because the world runs on commerce. There will be a global reorganization at the expense of people who thought they could make a quick buck from nothing and didn’t have to think about the future.
Good analysis Cynapse and another sign that the U.S. is no longer the economic power house it use to be ‘Cheng stated on record that China has lost confidence in the U.S. dollar and is going to shift to a partial gold standard through reserve accumulation’
Will others follow?
http://www.numismaster.com/ta/numis/Article.jsp?ad=article&ArticleId=7635
s.