What A Messed Up World!

To say growth in most countries has slowed this year is too generously commented. Dislocation in credit markets, tightening financial conditions in major economies, generalized inflation fears, risk of further nationalization in the name of survival etc are among typical dark humor for default socialism that one cannot deny the gravity of the situation.

The CBO crisis has lifted the Fed deficit estimates above US$400bn and we are still yet to find footing to the root of the problem and really it is not beyond a simple trick of buying time through short term funding otherwise before it becomes a moot point. The top 10 bail-outs in the last 30 years have cost countries more than 10% of the income.

The trade weighted value of US dollar fell nearly 40% since Feb 2002 and along with the sharp rise in the US current account deficit has translated into poorer prospects to those economies depending on the fate of the US economy. The United Kingdom has slipped into recession and no one is immune from this shock. The Euro and Japan are skating dangerously close to recession, if not already in the recession.

Some central banks have tightened policy a bit further, but some are already on loosening path. The Reserve Bank of Australia, PBOC etc has already cut rates and the incipient of recession likely to resume easing sooner than expected, but I am still not too sure if it is going to be enough or reactive fast before the snowballing takes place.

External vulnerabilities are feeding into domestic demand. Discretionary spending by consumer is ebbing and portfolio flows have not been more volatile than in recent months.

The baton for FX whipping boy has passed more decisively from the US dollar to somewhere else. The currency stampede looks more perplexing and seriously misplaced, especially in recent months with the rebound US dollar. My view is that complacency will be shaken hard and I repeat a major health warning here that we are already in big mess!

We are no different position than that those excited, yet weird-looking scientists warming up the latest plaything – Large Hadron Collider to re-enact the conditions of the ‘Big Bang’ by smashing the components of atoms together. Lucky us that this black hole yet to push our luck too far otherwise we left with a massive explosion 14 billion years ago that created the universe.