Warning Signs Point to a Global Slowdown
Warning signs pointing to a deepening global economic slowdown—and the risk of recession—are flashing more brightly. Many of the biggest troubles are showing up overseas. But markets are signaling that the threat of a downturn is spreading to the U.S., the world’s largest economy, now in its longest expansion on record.
Economic output in Germany, the world’s fourth-largest economy, contracted in the second quarter, according to a report Wednesday, while a report on factory output in China, the world’s second-largest economy, was lower than expected. Earlier this week, Argentina’s currency and stock market tumbled, stoking fears over one of South America’s largest economies.
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The yield on the U.S. 30-year Treasury note, which moves inversely to the price, fell to a record low, a sign of expectations of low inflation and slow growth in addition to investor appetite for safe assets. At the same time, the yield on Treasury notes with a 10-year maturity briefly fell below the yield on Treasurys with a 2-year maturity, a phenomenon known as an inverted yield curve, which has indicated a looming recession in the past.
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One big factor behind the latest troubles is a downturn in global trade, stoked by a spat between the U.S. and China that has led to a series of dueling tariffs. The duties have driven up the price of hundreds of billions of dollars in goods made by the world’s two largest economies, hitting farmers, manufacturers, retailers and others. For export-dependent economies like China and Germany, trade disruptions mean immediate trouble. The U.S. is less dependent on exports than others, somewhat insulating its economy.
Still, because American multinational corporations have spent the past two decades building vast global supply networks, uncertainty about trade and the changing cost of doing business are leading to trepidation about investment around the globe. U.S. business investment fell at a 0.6% annual rate in the second quarter, after achieving quarterly growth rates exceeding 8% in late 2017 and early 2018. U.S. exports also contracted in the second quarter. Economists say that trend could continue if corporate profits continue to fall. U.S. corporate profits before taxes, across the whole economy, were down 2.2% in the first quarter compared with a year earlier, according to the Commerce Department.
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https://www.wsj.com/articles/warning-signs-point-to-a-global-slowdown-11565814494 (paid subscription)
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Take Argentina's ongoing 'Macrisis':
It's started as a mostly domestic problem.
A carry-trade debt bubble, promoted by neo-con President Mauricio Macri in 2016-17 mainly as political payback for his biggest backers (banksters, both Argentine and foreign), popped in April 2018.
The crisis shut Argentina off from foreign bond markets almost overnight, so what's a Latin kleptocrat to do?
Why, call his top ally and longtime personal friend: Donald Trump.
Cheeto obliged him with no questions asked, forcing the IMF (against their own policy board's advice) to grant Argentina a record-setting $57 billion bailout.
Trump's goal wasn't rescuing Argentina's middling economy (1% of the world's) - but rather to help guarantee Macri's re-election this year.
Suffice it to say, it failed - and badly: Macri just lost the first round on Sunday by over 15% - making his defeat in the 2nd round this October all but certain.
This still leaves the bailout, considered unpayable by most analysts - unless the 4-year standby credit facility can be rescheduled as an extended fund facility (with 10-year repayment terms).
Because Trump's Argentina bailout represents 61% of the IMF's loan portfolio, it's a major solvency risk for the Fund should Argentina default - as 30 other countries have in the past, albeit for smaller loans.
And guess who the IMF would turn to if they need a bailout?
