Fears of Great Depression II
Courtesy of Rom at Bondsquawk
As the markets tumbled around the globe, risks are increasing that the European debt crisis could spill over and derail a global recovery and into a global recession according to the U.K.’s Telegraph.
Bill Gross of bond fund Pimco said that hedge funds were starting to liquidate their positions in a bid to preserve their capital – a worrying “mini relapse” towards 2008 territory.
Andrew Roberts, head of European rates strategy at RBS, said “Great Depression II” could now be approaching, adding: “It now has potential to speed toward its conclusion; a European $1trn package which does little and political panic tells you we are about to reach the end of the road. The world should be discussing deflation, not inflation.”
Telegraph states that while the plunge in world stock markets comes from the troubles of Europe, fears that the crisis may cripple the world’s fragile economies as they recovery from the U.S. financial crisis, were bolstered by recent economic data.
The European Commission produced “flash” data showing consumer confidence falling from a 23-month high of -15 in April to a seven-month low of -17.5 in May.
In the US there was a surprise 25,000 increase in jobless claims to 471,000 in the week ending May 15. The deterioration in the employment picture, coming hard on the heels of Wednesday’s drop in inflation, underlined worries that the US is exposed to a possible global double-dip recession.
Interestingly, the website reported that other countries that suffer high debt ratios may soon be exposed which could further escalate the crisis.
One rumour abounding on Thursday was that a major rating agency will soon have to downgrade Japan’s credit score, potentially bringing the world’s second-biggest economy into the spotlight.
If the latest rumor comes to fruition, the recent decline in stock prices could be just the beginning of another prolonged bear market that could trigger the world economies into a state of depression.
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