Tuesday, January 17, 2012

Crystal Ball 2012

It has been a volatile 2011. S&P stripping the US of its top rating, problems compounding in the Euro-zone and revolution in the Middle East have surely made 2011 an eventful year. It has been a roller coaster ride and as a passive onlooker I thoroughly enjoyed every bit of the action.
Now, what's in store for 2012?
Well no one has the answer to that but I surely know who is going to write the script for the events that will unfold during the course of the year and I shall reveal that towards the end of the article.
As expected the crisis that emerged in Greece has managed to engulf the major nations in the Euro-zone. The pressure has been growing over the ECB to start printing more Euros in its Frankfurt office to solve the crisis. The recent LTRO operation has more or less acted as a proxy to a fully fledged QE. Germany has stubbornly resisted calls for QE but it is just a matter of time before the Germans succumb to the pressure. The LTRO operations have had a positive impact on the Euro-zone borrowing cost and bond markets. Rising uncertainty over the ability of the EFSF to raise funds and growing doubts over the credit rating of the nations in the region would eventually prompt the ECB to undertake a fully fledged QE to avert the catastrophe.
Calls for QE in the US, UK and Japan too have been getting louder. Looking at the worsening health of the global economy it is evident that at regular intervals we will be seeing most of the central bank undertaking easing measures to boost growth. It is clear that the easing measures by the Fed and BoE have helped their respective economies from collapsing. But are these measures taken by the major central banks improving the situation in Main Street?
The unemployment in the UK has reached record levels. There has been a marginal improvement in the US job market but analysts expect the job market problems to resurface after the euphoria following Christmas and New Year dies down. Moreover, unemployment in the US has remained above the 8% mark since the subprime crisis broke out. Japanese economy has indicated that despite continued easing measure for over two decades, problems related to growth and deflation continues to persist.
The problems that global economy faces is that none of the measures taken by the political class and policy makers in the central banks addresses the key issues faced by main street. QE/stimulus and other fiscal measures has enabled the economies to mathematically avoid a recession but deteriorating conditions in the job markets across the world has fuelled the discontent amongst common citizens across the nations. Besides problems related to unemployment, there is a growing discontent over policymakers and dictators across the world. The revolts in Middle East, protests in Wall Street and riots in the UK are all signs that people across the globe are urging their leaders and policymakers to implement reforms to bridge the gap between the rich and the poor.
It is clear that the seeds of revolution were sown in 2011. However, these worrying realities fail to awaken the political class which has been focusing on measures to stem the crisis rather than tackling the crisis head on. Elections in France and the US in 2012 and German elections next year will provide direction to how things shape out for the global economy.
Recent crisis clearly reveals that capitalism in its current form is clearly failing. The harsh reality is that when animal instincts hijack the human mind, capitalism gives birth to crony capitalism. With protests across the world against the current form of capitalism being practiced, let’s hope that the global economy moves away from crony capitalism to a system which enhances sustainable and inclusive growth.
Therefore, the person who is going to decide the course of 2012 is the protester in the Middle East, Russia, Wall Street, Britain and India. The protesters across the globe shall grab the headlines in 2012. Let's hope that these protesters successfully shape the future for a brighter tomorrow.

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