The Global Economy

The credit crisis that began in July 2007 has ravaged the global economy. All asset classes globally (stocks, bonds, currencies, commodities and real estate) saw unprecedented declines. While stock markets have rallied since, I believe we are headed back into a recession.

The Acamar Journal has been warning since its inception in 2004 that this crisis was on its way and called the recession in November 2006, well before the credit crisis began.

The US has run up a $ 14 trillion debt in a $ 14 trillion economy. A debt-to-GDP ratio of 100% is generally a tipping point to a debt crisis ahead.

Unfortunately, government is part of the problem. It was the Federal Reserve trying to avert a deep recession after the Internet bubble in 2000-2001 with record low interest rates that led to the housing bubble and the global credit crisis.

It was record debt levels and high leverage that created this mess and more leverage and liquidity is not the solution. By interfering with the business cycle, governments run the risk of dipping the existing recession into a depression.

The record stimulus applied globally will not stop a relapse into recession as the economy and sentiment continue to weaken, and as the debt crisis in Europe deepens.

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