Posts Tagged ‘debt crisis’
Germany to Pull Back on ECB’s “Whatever It Takes” Position?
By Michael Lombardi, MBA for Profit Confidential
I can’t stress this enough: troubles in the eurozone are far from over.
First and most important, the strongest nations in the eurozone are experiencing an economic slowdown now too. As I have written before, France and Germany are seeing diminishing demand.
Finland, one of the financially strongest nations in the eurozone, fell into a recession in the first quarter of this year. Why? Exports from Finland are declining due to economic slowdown in the eurozone area, unemployment is increasing, and the government has introduced spending cuts. (Source: Wall Street Journal, June 5, 2013.)
The European Central Bank (ECB) expects the eurozone economy to shrink by 0.6% this year, lower than its previous estimate of 0.5%. In the first quarter of 2013, the eurozone experienced its sixth consecutive economic slowdown. (Source: Associated Press, June 6, 2013.)
Regardless of what you hear or don’t hear in the popular media, don’t believe for a second that the economic slowdown in the eurozone is going away anytime soon. The region is struggling with extreme levels of unemployment—the highest ever just recorded in April.
Some countries in the eurozone such as Ireland, Greece, and Portugal have now reached debt-to-income ratios (what the government spends compared to what the government brings in) above 300%. (Source: The Guardian, June 9, 2013.)
We have heard the head of the ECB say that the central bank will do “whatever it takes” to save the eurozone. But Germany is challenging this notion. The President of Germany’s central bank is expected to testify in front of the court and say it is illegal to bail out bankrupt eurozone … Read More
Number of S&P 500 Companies Reporting Negative Guidance a Red Flag
By Michael Lombardi, MBA for Profit Confidential
Standard & Poor’s, the credit rating agency, believes the likelihood of the U.S. credit rating being downgraded in the near term is less than 33% (one in three) and it has decided to keep its credit rating on the U.S. economy at AA+, slightly lower than the best investment grade. (Source: Standards & Poor’s, June 10, 2013.)
This may be good news to the politicians who continue to believe there is an economic recovery in the U.S. economy, but it’s not enough to convince me.
In March, 47.7 million Americans, or 23.1 million households, were on some form of food stamps in the U.S. economy. (Source: United States Department of Agriculture, June 7, 2013.) This is more than 15% of the U.S. population.
And instead of people moving away from the government’s help, as would be the case during economic growth and a recovery, dependence on the government is actually increasing. Food stamp use in the U.S. economy was lower at 44.5 million in March of 2011.
Economic growth in the U.S. economy means job creation and consumers increasing spending—we have the exact opposite today.
After 2009, we had a sense of economic growth in the U.S. economy as demand in the global economy meant many multinational American companies were able to sell their goods for a profit outside the U.S. But as the global economy struggles now, it’s a different story.
For the second quarter of 2013, 116 companies in the S&P 500 have provided corporate earnings guidance; 93 of them have provided negative guidance. The ratio of companies providing negative guidance compared to companies providing positive guidance has … Read More
Next Tiny Country in the Eurozone to Bust
By Michael Lombardi, MBA for Profit Confidential
While cutting the growth outlook of the global economy, Chief Economist of the International Monetary Fund (IMF) Olivier Blanchard said yesterday, “…the main challenge is very much in Europe.” (Source: “IMF Cuts Global Growth Outlook as Europe Demand Urged,” Bloomberg, April 16, 2013.)
Blanchard showed further concerns regarding the economic slowdown in the eurozone, saying, “Europe should do everything it can to strengthen private demand. What this means is aggressive monetary policy and what this means is getting the financial system stronger…” (Source: Ibid.) In other words, print more paper money.
Greece, Spain, Italy, and Portugal are facing a staggering economic slowdown and are dragging the stronger eurozone nations down with them. The countries that were supposedly “immune” to the debt crisis in the region are now feeling the pressures.
Germany, the strongest nation in the eurozone and the fourth-largest economy in the world, is having troubles; demand is falling. German car sales plummeted 13% in the first quarter of 2013. (Source: Financial Times, April 17, 2013.) The Bundesbank, Germany’s central bank, expects the country’s gross domestic product (GDP) to increase by only 0.5% in 2013. (Source: MNI News, April 16, 2013.) But being so early in the year, this 0.5% GDP growth can easily turn into a 0.5% contraction, considering the problems in the eurozone.
As I have been writing since the beginning of 2012, the economic slowdown in the eurozone will spread to other parts of the world, rather than it being contained.
The events in Cyprus sent a significant amount of fear into the global economy. And the crisis there still isn’t over. … Read More
Student Loan Default Rate Hits a Scary 11%
By Michael Lombardi, MBA for Profit Confidential
Another crisis looming in the air…
Student debt is going to be the next big hurdle to deal with in the U.S.’s economic recovery. Total student loan debt currently stands very close to $1.0 trillion and defaults on these loans are increasing at an alarming rate, placing more pressure on economic growth.
In the third quarter of 2012, student loans delinquent over 90 days stood at an alarming 11%. (Source: Federal Reserve Bank of New York, November 2012.)
I expect this delinquency rate and default rate to rise. It’s not rocket science: there is no economic recovery or real economic growth. Americans are still suffering. The more they suffer, the more they fall back on their loan payments. Thus, how can students get a break?
Here is what the U.S. secretary of Education Arne Duncan said about the looming student debt crisis: “We continue to be concerned about the default rates and want to ensure that all borrowers have the tools to manage their debt. In addition to helping borrowers, we will also hold schools accountable for ensuring their students are not saddled with unmanageable student loan debt.” (Source: U.S. Department of Education, “Press Release: First Official Three-year Student Loan Default Rates Published,” September 28, 2012.)
According to a recent survey by Fannie Mae, 20% of respondents believe their financial condition is going to get worse over the next 12 months—this is the highest percentage of people with this opinion since August 2011. In addition, 36% of the respondents reported a significant increase in their household expenses over the past 12 months. (Source: Fannie Mae, January 7, 2013.) Inflation? … Read More
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