A Rush To A World Depression?

In Europe, policy is still on deflationary settings, with protestors in Athens fighting back against austerity measures. Photo: REUTERS

Protectionism Beckons As Leaders Push World Into Depression -- Ambrose Evans-Pritchard, The Telegraph

The world savings rate has surpassed its modern-era high of 24pc. This is the killer in the global system. It is why we are at imminent risk of tipping into a second, deeper leg of intractable depression.

The International Monetary Fund (IMF) expects the savings mountain to rise yet further next year as the governments of Europe, Britain, and the US tighten belts, in unison, by up to 2pc of GDP.

This is double the intensity of the last big synchronized squeeze in 1980.

They will do so before the private sector is ready to grasp the baton, and without stimulus from the trade surplus states (Germany, China, Japan) to offset the contraction in demand.

Put another way, there is a chronic lack of consumption in the world. "This probably comes as a surprise to most people, gorged on propaganda about excessive debt and the need for retrenchment," said Charles Dumas from Lombard Street Research.

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My Comment: The temptation to implement trade barriers and tariffs will be irresistible for countries that are experiencing rising unemployment rates. Unfortunately .... as the 1930s showed .... trade barriers inevitably always ended with even higher unemployment rates.