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Global Economic Storm Clouds

17 February 2010 One Comment

I believe there are too many storm clouds building on the global economic horizon to warrant any positive outlook for the global economy at least for the foreseeable future.  Let’s take a look at some of these potential storm clouds.

Iran

The escalating nuclear situation in Iran might have some devastating consequences for the global economy.  Any outbreak of war involving Israel, Iran, and/or the U.S. will definitely have a negative effect on the economy.  Oil prices would likely spike (along with other commodities potentially).  Unfortunately, the Iranian leadership seems bent on instigating conflict and/or starting a war with Israel.  Not sure where this will go, but it doesn’t look promising.

China Bubble

The economy in China might be running on fumes.  The stimulus has been unprecedented in order to keep the economy chugging along.  The speculation in China (pig farmers buying copper) has been incredible.  If this economy falls back to Earth it will impact the entire global economy since many view China as the country that will lead the world out of recession.

American Consumer

For years the American consumer led economic growth.  Products built around the world were sold to Americans flush with cash.  With the American consumer weakened, economies all over the globe have been impacted.  The question will be how much will the American consumer bounce back if at all?

European Debt

As we’ve seen in recent days, Greece has insane debt levels.  The country faces a default or aid from other countries.  The problem isn’t Greece, but the risk that Greece represents – too much debt.  Other countries such as Portugal, Spain, Ireland all may need to be addressed in the not too distant future.

Global Stimulus Sugar High

With countries around the world printing / spending money to stimulate their economies, the question will soon be whether or not economies can stand on their own without the stimuli.  The answer to this question might not be pleasent.  If the global economy continues to falter, governments will have to choose between additional stimulus which might lead to inflation or economic pain.  Hardly a good choice.

One Comment »

  • analystanalyzer said:

    My question would be, would an Iran war be significantly benneficial for the world economy in some countries that rely on oil and other consumer goods that war requires? If there is a war, the cloud of uncertainy of whether there will be a war or not will be gone.

  • 20smoney (author) said:

    The idea that war is good for an economy is similar to the broken window fallacy in my opinion. The broken window fallacy says that a hurricane is good for an economy because lots of stuff needs to be repaired. If that were true, we would go around and break windows every day to cause "growth". Similarly spending money to fight a war is good for defense companies, but very bad for the economy overall because we're not allocating money towards future production and wealth generation, rather war.

    Also, a spike in oil prices would have a huge negative impact on many industries that rely on shipping, transportation, etc. which is a ton of industries.