Thursday, December 03, 2009

Worldwide Economic Instability a Major Threat

The U.S. Director of National Intelligence, Dennis Blair, has told Congress that instability in countries around the world caused by the global economic crisis and its geopolitical implications, rather than terrorism, is the primary near-term security threat to the United States.

And another leading figure on the world stage has voiced similar concerns.

In March, Dominique Strauss-Kahn, the head of the International Monetary Fund, warned that the global economic crisis threatened millions of people with being pushed into poverty.

At a meeting of the International Labour Organisation, Mr Strauss-Kahn issued this warning:

"'Bluntly the situation is dire. All this will affect dramatically unemployment. And, beyond unemployment, for many countries it will be at the roots of social unrest, some threat to democracy, and maybe for some cases it can also end in war."

He also warned governments against ploughing even more fiscal stimulus into their ailing economies.

"You can put in as much stimulus as you want. It will just melt in the sun as snow if at the same time you are not able to have a generally smaller financial sector than before, but a healthy financial sector at work."

The Federal Reserve didn't heed the warning; instead it has increased the monetary base by 142% over the last two years.

Meanwhile, bank balance sheets continue to deteriorate as home foreclosures spiral, and as the commercial real estate collapse gains momentum.

And people are noticing.

Standard & Poor’s has given warning that nearly all of the world’s big banks lack sufficient capital to cover trading and investment exposure, risking further downgrades over the next 18 months unless they move swiftly to beef up their defences.

Every single bank in Japan, the US, Germany, Spain, and Italy included in S&P’s list of 45 global lenders fails the 8pc safety level under the agency’s risk-adjusted capital (RAC) ratio. Most fall woefully short.

And then there's the Dubai default / debacle, which sent a shockwaves through markets around the world. Dubai is likely the canary in the coal mine, signaling the weakness of the global financial system, and the limits of debt.

It appears that 2010 isn't shaping up to be a very happy new year.

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