How Europe’s Crisis Can Tip U.S. into Recession

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The eurozone has been heading down a slippery slope ever since its sovereign debt crisis erupted more than a year ago. The crisis so far has been a financial issue complicated by political bickering over a solution. It is entering a more dangerous phase. The debt problems are starting to weigh heavily on Europe’s economy, and the ripple effects are threatening global growth and the fragile U.S. recovery. The eurozone’s crisis is one more headwind that could tip the U.S. economy back into recession in 2012.

Economic forecasts for the 17-member eurozone are being cut sharply for the rest of 2011 and 2012, Ongoing fiscal belt-tightening and new stress on bank funding is tightening credit conditions even in the core German and French economies. Plus, many analysts now believe that Greece cannot escape a second debt restructuring with a much rougher impact on private-sector bond holders.  The jolt would reverberate across Europe’s trade channels and bank balance sheets, increasing chances that financial contagion could engulf even healthy banks and solvent governments, as investors race to safer territory. U.S. financial markets and exports are also vulnerable, and new global uncertainty would weigh further on U.S. business investment and hiring.

Recent gauges of both activity and sentiment in the eurozone have plunged, suggesting the intensifying debt crisis has significantly damaged the economy. Analysts at J.P. Morgan, the latest to slash their eurozone outlook, expect real GDP in the region to slip into negative territory in the fourth quarter. They now forecast a decline of 0.5 percent in 2012, even assuming aggressive action by policymakers to support banks and sovereign obligations. A recession would put additional pressure on government budgets, add to the risk attached to government debts, further erode credit quality on bank balance sheets, and increase the chances of a global recession.

The International Monetary Fund (IMF), which lowered its forecast for 2012 global growth to 4 percent on Sept. 21, defines a global recession as growth below 3 percent. Many private-sector forecasts are already close to that mark.  J.P. Morgan is at 3.1 percent, while Citigroup recently cut its projection to 2.9 percent. Nearly 90 percent of the investors, analysts, and traders surveyed in a Sept. 26 Bloomberg Global Poll say the eurozone economy is getting worse, while about two-thirds say the global economy is weakening. More than 40 percent of those polled expect a global recession in the coming year.

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Bret Stephens in the Wall Street Journal:

“In 1973, Europeans worked 102 hours for every 100 worked by an American. By 2004 they worked just 82 hours for every 100 American ones.”

From 1965 to now, the reproductive rate of native Europeans of traditional stock has declined by about 40 percent, to levels that will lead to an extinction.
The countries’ people are welfare addicts.
Some of the EU’s countries were accepted into the EU even though their currencies had never been solvent.
In the EU, if an illegal alien evades police for a mere 12 weeks he is rewarded with all the rights and benefits of legal workers, as well as the welfare.

The only way the EU’s coming demise can ruin the USA is if we 1. keep tying our currency valuation to the Euro and if we 2. keep bailing them out.
Of course, Obama needs a scapegoat, so I expect he will continue both those policies until he is out of office.

We cannot go back to a gold standard.
BUT we could adopt a 1/3rd gold, 13rd oil and 1/3rd consumer basket as our dollar’s valuation basis.
Swallow hard.
We do that and we see how inflated our dollar has become.
Another invisible Obama TAX.