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Response to article by Dr. Nouriel Roubini’s Economonitor from the FINANCIAL TIMES article, ” A Plea to Policymakers: We Can’t Risk Another Year of Delay” December 20th 2011.

This article is an excellent analysis by Dr. Roubini. However, there are several alternatives  ( in my humble opinion ) to the situations in the U.S., China and the Euro Zone.

First of all, looking at 2012, I believe there is little likelihood that all 3 of these economies will become a disaster. First and foremost, the Euro Zone has little likelihood of dissolving in 2012, due to the ECB loans and debt to maturity of bonds in the Euro Zone. 2013 will be the REAL TEST for the Euro Zone, based on national presidential / prime ministerial elections in Germany, France and Spain.

Secondly, China is not likely to have a hard landing in 2012, due to its command economy’s ability to rapidly adjust. Again 2013 and the medium term is a different, less certain story. Fortunately for the global financial system, China is in a position where it MUST continue to appreciate it’s currency at a quicker pace than the last several years. It it likely to become a solid global reserve currency within the next 5-7 years or so, along with the US dollar and hopefully the Euro as well. This is a matter that I believe Dr. Roubini has failed to take into consideration in the short and medium term. This likely event would decrease the likelihood of a currency and trade “wars” in 2012. The prognosis for 2013 is another matter all together

Lastly, the probability of a double dip recession in the  U.S. is no more than 50/50 at best, due to the historical ingenuity of the U. S. economy. It is also likely that medium and especially large U.S. banks will purchase ( at fire-sale prices ) assets off the banks in the Euro Zone that must continue to deleverage assets off of their balance sheets.

To have a global financial meltdown (again in my humble opinion ) in 2012, at least 2 of the 3 economies in either … China, the U.S. and the Euro Zone must falter in a dramatic fashion. The least likely disaster for 2012 is the Euro Zone, followed by the Chinese economy. The faltering of the U.S. economy in 2012 is the most likely scenario.

This is all a matter of timing. One disaster out of three in 2012 will very likely NOT spell financial Armageddon.  2 out of 3, or 3 out of 3 would be disastrous but EXTREMELY unlikely.

Neven Adam Strmski

For further relevent analysis please see  …      /


About Neven's Blog

My blog focuses on FINANCIAL MARKET ANALYSIS & INSIGHT from a macro as well as a micro - level point of view. The information is straight forward, honest, simplifies complex matters, questions some oversimplified matters, all while being as easy as possible for readers to understand. I primarily focus on capital and currency markets by combining insights, analysis & ideas from the fields of finance, economics and geopolitics.


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