Is the Global Debt Crisis Over? - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 5 April 2012
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Is the Global Debt Crisis Over? A  A  A

- By Asad Dossani, Author, The Lucrative Derivative Report

Asad Dossani
For almost two years, the financial press has been filled with news regarding the global debt crisis. Most of this attention has been focused on the Eurozone, and in particular the prospect of a Greek default. Bailouts have occurred in a number of European countries, all to stem to possibility of full-blown financial crisis.

For some time in the middle of last year, the US economy became part of the debt crisis. In August 2011, they nearly defaulted on their debt due to their inability to raise the debt ceiling in timely manner. In the end, they managed to avert a crisis, but lost their AAA credit rating in the process.

Though the debt crisis was a big part of 2010 and 2011, this year has been quieter. There was a Greek bailout at the start of the year, but since then the Eurozone debt crisis has been largely out of the news. So what happened? Have things been quietly solved and is there more to worry about?

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The fact that the crisis has been out of the news is certainly a good thing. Positive steps have been taken in many European countries to fix their debt problems. Recently, Spain announced large budget cuts to reduce their deficit. In addition, France recently reported a smaller budget deficit as compared with the previous year, a further sign of economic improvements.

While positive steps have been taken, the truth is that this is only the beginning. For the short term, a crisis appears to have been averted. But what has yet to happen is the full impact of the debt crisis. When the financial crisis occurred in 2007-08, the full impact wasn't seen until a year later when developed economies went into recession. Following that, the governments that bailed out the banks ended up with their own debt problems.

The result of all the austerity measures taking place in European countries will be slower growth or recession and higher unemployment for years to come. Ironically, even if the debt crisis has been averted for now, the indicators that really matter for living standards (i.e. GDP, unemployment) are likely to get worse.

For example, Spain has a current unemployment rate of over 20% and an economy in recession. Greece is in the same situation, a contracting economy with unemployment in excess of 20%. These figures are quite staggering, considering that they are developed markets.

Thus, the answer to the question as to whether the crisis is over is that yes there is no longer an imminent crisis. This could of course change should something bad happen. But even if the crisis has abated, the full negative effects of it are yet to be felt. So the worst is certainly not over.

is a financial analyst and columnist. He actively trades his own and others' funds, investing primarily in currency, commodity, and stock index derivative products. Prior to this, he worked at Deutsche Bank as an analyst in the FX derivatives team. He is a graduate of the London School of Economics. Asad is a keen observer of macroeconomic trends and their effects on global financial markets. He is deeply passionate about educating investors, and encouraging individuals to take part in and profit from financial markets. To put it colloquially, he wishes to take Wall Street products and turn them into Main Street profits!

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