Dear Reader, the purpose of this piece is not to alarm you but to help keep you informed, as the global economy grows weaker.
Many people believe the world's largest economy is that of the U.S. or China. But in fact Europe has the world's largest economy and that economy is falling apart.
Spain, the Euro Zone's 4th largest economy, is going broke. Their unemployment is a stunning 25 percent of the workforce, the same level as that of the U.S. at the worst of the Great Depression during the 1930's. Spain's banks are broke, Spain's bonds barely sell even at premium interest rates and Spain's stock index is tumbling.
Italy, the Euro Zone's 3rd largest economy is also going broke, as are Portugal and Ireland. Greece and Cyprus are broke, and for now, the latter two, because their economies are relatively small, are being carried by their nervous creditors. While England, deeply in debt, has its worst economy in 50 years and has fallen back into Recession and France, the Euro Zone's 2nd largest economy is sinking into Recession.
Germany, the Euro Zone's largest economy does not have the financial resources to bail these and other troubled European nations out and it too is being impacted by the falling economies of its European neighbors. On Tuesday (7/24/12) Moody's put Germany, the Netherlands and Luxembourg on notice of a possible downgrade of their Triple AAA top rating.
The result of these declining European economies is that corporate earnings are being hit. Recently Ford, Apple Computer and other companies announced weaker earnings, blamed in part upon falling European sales. Companies such as these are being counted on to hire more people, something unlikely to happen if their sales declines continue.
Meanwhile, European politicians haven't had the will to resolve these huge and rapidly growing problems. Instead, for 2 1/2 years they have lived in a state of denial, periodically announcing solutions that don't work, while allowing the problems to grow much more severe.
This is because they don't want their banks and their investors to be forced to take huge write offs on the money they have already invested in the economies of these sinking nations by recognizing what is actually taking place. Nor have they been able to resolve the severe and gaping governance issues within the Euro Zone. In the months to come, they will have no choice.
Yet just yesterday (7/26/12), the President of the European Central Bank (ECB) announced "Within our mandate, the ECB is willing to do whatever it takes to preserve the euro and, believe me, it will be enough."
Based on this man's assurances, stock markets soared as they have on many other occasions when leaders have made such assurances, only to tumble down when those assurances fail to solve the immense financial problems. It would be much more assuring if the ECB actually provided the money.
How will you be affected when the 17 nation Euro Zone collapses?
If you are European, you are already feeling the pain and it will grow worse, as your trade revenues fall taking jobs and tax revenue with it.
If you live in such strong surplus trading nations as China, Japan, South Korea and Brazil, your trade surpluses are already falling as many of your nation's trading partners aren't able to afford your goods.
That drop will cost you large numbers of jobs and that loss of jobs will ripple throughout your economy taking more jobs with it. Of course tax revenue will also fall, which in turn will force cut backs on government services, pensions, and health care benefits.
The impact of this has already begun. For example, for the last two years, China, tried to raise the value of its currency, the Yuan, versus the U.S. Dollar to make Chinese made goods a little more expensive to allow U.S. manufacturing to be a tiny bit more competive. Now, to protect its softening economy, China is reversing that policy to make its own economy the higher priority.
If you live in South Africa, the African continent's largest economy, you are already feeling a weakening job market, as your European trading partners are cutting back, and so is China, not needing as many of your raw materials.
If you live in Russia, or in Eastern Europe, you have extensive trade links with the Euro Zone nations and you will feel the severity of their pain. In Russia, your ruble could lose up to 25% of its value and your job market will become considerably weaker.
If you live in the oil producing nations of the Middle East, Africa, Canada and Latin America, your export of oil and the revenue it produces will be cutback as oil dependent economies around the world will have less need for your product. In the case of Canada, you have especially prospered in recent years by selling other raw materials as well, but that too will be cutback. And your real estate prices are at levels so high, they are unsustainable and will fall.
If you live in the U.S. as I do, we are by far the biggest debtor nation in the world, our government constantly borrowing money just to pay its bills. The only reason we have not gone broke is the widespread perception among investors that we have the safest economy to invest their money, and so many of them buy U.S. government debt. That Standard & Poor's several months ago downgraded that debt is largely ignored.
But the big kicker for everyone will be the giant banks. In a world growing smaller, these banks are inter-linked, doing vast numbers of transactions together. The failure of a few will bring the failure of many, and much like the near global financial collapse of 2008, they will need new bailouts. But these bailouts will be so large, that governments won't have the money.
As we all move steadily to the precipice, what can you do to protect yourself:
1) Take care of your health. Without good health, you can do
little to protect yourself and your loved ones at such a crucial time. If you
suffer from diabetes, heart disease or other often preventable but severe
diseases, do something about it, starting today. Begin eating wisely, slashing
junk foods and get some exercise. Your well-being depends on it!
2)
Protect your job. Cross train so you have more to offer your employer, find ways
to help generate revenue or cut costs because that is how nearly every
organization is now focused, be upbeat because no-one wants to be near a
complainer and word about complainers travels far and fast and tackle jobs your
boss feels are essential but doesn't want to personally do. And with a smile,
the more you can do to help others in your organization with their work, the
more support you will receive from them and this is a time when everyone needs
the support of others.
3) Slash your overhead. Sell-off unessential items
such as an extra car, or a motorcycle, boat or other toys you may no longer be
using but cost you money to keep. Pay down or pay-off your credit cards for
those monthly payments are eating your budget alive. If need be, approach those
credit providers to explain the dire nature of your finances and try to get a
forgiveness of some of your debt or better payment terms.
4) Educate
yourself with practical courses. Select online, extension or other courses that
can put money in your pocket such as those related to computers, medical care or
other much needed skills.
5) Make charitable donations. To the extent you
can afford to, please give generously to charities for in the end, all we have
is each other. And the donation you make now may help someone else get back on
his feet and in turn he may later help you get back on your feet.
6)
Laugh and have some fun. Life is meant to be enjoyed. All around you are TV
sitcoms, YouTube videos of your favorite comedians, movie comedies and other
humor that will bring joy to your life and put a smile on your face.
7) Love your family. For no matter what happens, they need your love and attention and they are your highest priority.
One
final note: Together we will get through the horrors of this financial crisis,
for the world has had many financial crises and after considerable hardship, it
always survives them. During the 1930's Great Depression, people came together
to help one another and as times grow worse that is what we will do now.
Dick
If you would like to see a 3 minute humorous yet insightful piece dealing with the
faltering European economies, http://www.youtube.com/watch?v=NOzR3UAyXao&feature=g-vrec
Thank you to my friend Michael Delees for sharing this
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