Second Round of Global Economic Meltdown May Be on the Way

Things are looking extremely rough and dangerous for the global financial markets as it turns out that a new wave of the recession which started shaking the world in 2008 may be headed back around for another shot at what many economists are referring to as a second Great Depression. With the yield on 2 year United States Treasuries falling to a new low on the records in hopes of some solid ground, 0.61 per cent to be precise, experts are stating that this is as low as the Great Depression that struck during the 1930’s. Just as some were beginning to say that Wall Street was looking good and possibly about to pick up a 3 per cent growth for the 2nd half of 2010, more foul news comes. The bond market happens to be one of the key economic indicators and its performance this year is showing that any kind of global economic recovery may well be dead in the water. According to a Deutsche Bank strategist in credit matters, the issues of credit have given economists and political officials indicators of what would take place throughout the first round of the economic meltdown that now looks to have begun critical velocity during 2007.

The credit strategist went on to say that deflation has now become the most potent risk for the West and is likely going to force the central banks to start easing up in the qualitative sense once again. The Europeans will likely not do this until they have no other choice, but the Americans, says the strategist, will do it pre-emptively. The crisis in banking that Spain is not experiencing, a drop in important economic indicators for the Chinese and the steady erosion of confidence in the US markets are all working together to create something of a perfect storm for this meltdown. Paul Krugman, a winner of the Nobel prize, has warned along with other important global economist thinkers, that not only is the current recovery in danger of failing outright, but that if the North Atlantic region (which includes the United Kingdom) tightens their purses, then things could get even worse far more quickly. According to Krugman, this is the beginning phase of a 3rd depression that is the direct result of failed financial policies. He went on to say that both Europe and the US face striking deflation at the same level as Japan is well known for – and, Krugman says, the Fed is doing not a thing about these potential pitfalls.

China, meanwhile, is having their own set of problems and this is crucial since the Asian giant controls so much of the Western world’s manufacturing. With the Shanghai composite equities index falling a full 4 per cent to be 55 per cent below the peak it had at the end of 2008, Chinese authorities will work to tighten their hold over the economy and curb not only property speculation, but inflation, as well. Already, prices for homes in both Shanghai and Beijing are more than 12 times the average income, a fact which may be hard for even the savvy Chinese leadership with all its methods of control to fix in a meaningful way. Instead, the banks that are owned by the state now have a large amount of hidden debt to deal with.

Freight rate measuring tool for the shipping of bulk goods, The Baltic Dry Index, has dropped 40 per cent in May of 2010 alone and this is unnerving to many economists since it is a measurement of the flow of goods across international waters and a key indicator of global economic health. Top this off with the fact that the European Central Bank is going to shut off £361 billion in emergency single year loans, the largest amount a central bank has ever made available, and it is easy to see why economists are extremely edgy about the future. Spanish banks are unable to get their loans extended and this will mean awful things for the European nation, but a great many banks are said to be facing tragedy beyond the borders of Spain, as well.

Sources say it is only a matter of time before the 3rd largest holder of debt beneath the United States and Japan – Italy – reaches the tipping point and once debt settles there it will be a matter of time before everything hits collapse phase for monetary union.