Monday, March 21, 2011
Living on the edge...
The following are 10 economic disasters which could potentially rip world financial markets to shreds....
#1 War In Libya
Do you think that the "international community" would be intervening in Libya if they did not have a lot of oil? If you actually believe that, you might want to review the last few decades of African history. Millions upon millions of Africans have been slaughtered by incredibly repressive regimes and the "international community" did next to nothing about it.
But Libya is different.
Libya is the largest producer of oil in Africa.
Apparently the revolution in Libya was not going the way it was supposed to, so the U.S. and Europe are stepping in.
Moammar Gadhafi is vowing that this will be a "long war", but the truth is that his forces don't stand a chance against NATO.
Initially we were told that NATO would just be setting up a "no fly zone", but there have already been reports of Libyan tank columns being assaulted and there has even been an air strike on Moammar Gadhafi's personal compound in Tripoli.
So since when did a "no fly zone" include an attempt to kill a foreign head of state?
Let there be no mistake - the moment that the first Tomahawk cruise missiles were launched the United States declared war on Libya.
Already the Arab League, India, China and Russia have all objected to how this operation is being carried out and they are alarmed about the reports of civilian casualties.
Tensions around the globe are rising once again, and that is not a good thing for the world economy.
On a side note, does anyone recall anyone in the Obama administration even stopping for a moment to consider whether or not they should consult the U.S. Congress before starting another war?
The U.S. Constitution specifically requires the approval of the Congress before we go to war.
But very few people seem to care too much about what the U.S. Constitution says these days.
In any event, the flow of oil out of Libya is likely to be reduced for an extended period of time now, and that is not going to be good for a deeply struggling global economy.
#2 Revolutions In The Middle East
Protests just seem to keep spreading to more countries in the Middle East. On Friday, five Syrian protesters were killed by government forces in the city of Daraa. Subsequently, over the weekend thousands of protesters reportedly stormed government buildings in that city and set them on fire.
Things in the region just seem to get wilder and wilder.
Even in countries where the revolutions are supposed to be "over" there is still a lot of chaos.
Have you seen what has been going on in Egypt lately?
The truth is that all of North Africa and nearly the entire Middle East is aflame with revolutionary fervor.
About the only place where revolution has not broken out is in Saudi Arabia. Of course it probably helps that the United States and Europe don't really want a revolution in Saudi Arabia and the Saudis have a brutally effective secret police force.
In any event, as long as the chaos in the Middle East continues the price of oil is likely to remain very high, and that is not good news for the world economy.
#3 The Japanese Earthquake And Tsunami
Japan is the third largest economy in the world. When a major disaster happens in that nation it has global implications.
The tsunami that just hit Japan was absolutely unprecedented. Vast stretches of Japan have been more thoroughly destroyed than if they had been bombed by a foreign military power. It really was a nation changing event.
The Japanese economy is going to be crippled for an extended period of time. But it is not just Japan's economy that has been deeply affected by this tragedy.
According to the Wall Street Journal, the recent disaster in Japan has caused supply chain disruptions all over the globe....
A shortage of Japanese-built electronic parts will force GM to close a plant in Zaragoza, Spain, on Monday and cancel shifts at a factory in Eisenach, Germany, on Monday and Tuesday, the company said Friday.
Not only that, GM has also suspended all "nonessential" spending globally as it evaluates the impact of this crisis.
The truth is that there are a whole host of industries that rely on parts from Japan. Supply chains all over the world are going to have to be changed as a result of this crisis. There are going to be some shortages of certain classes of products.
Japan is a nation that imports and exports tremendous quantities of goods. At least for a while both imports and exports will be significantly down, and that is not good news for a world economy that was already having a really hard time recovering from the recent economic downturn.
#4 The Japan Nuclear Crisis
Even if the worst case scenario does not play out, the reality is that the crisis at the Fukushima Dai-ichi nuclear plant is going to have a long lasting impact on the global economy.
Already, nuclear power projects all over the world are being rethought. The nuclear power industry was really starting to gain some momentum in many areas of the globe, but now that has totally changed.
But of much greater concern is the potential effect that all of this radiation will have on the Japanese people. Radiation from the disaster at the Fukushima Dai-ichi nuclear plant is now showing up in food and tap water in Japan as an article on the website of USA Today recently described....
The government halted shipments of spinach from one area and raw milk from another near the nuclear plant after tests found iodine exceeded safety limits. But the contamination spread to spinach in three other prefectures and to more vegetables — canola and chrysanthemum greens. Tokyo's tap water, where iodine turned up Friday, now has cesium.
Hopefully the authorities in Japan will be able to get this situation under control before Tokyo is affected too much. The truth is that Tokyo is one of the most economically important cities on the planet.
But right now there is a lot of uncertainty surrounding Tokyo. For example, one very large German real estate fund says that their holdings in Tokyo are now "impossible to value" and they have suspended all customer withdrawals from the fund.
Once again, let us hope that a worst case scenario does not happen. But if we do get to the point where most of the population had to be evacuated from Tokyo for an extended period of time it would be absolutely devastating for the global economy.
#5 The Price Of Oil
Most people believe that the U.S. dollar is the currency of the world, but really it is oil. Without oil, the global economy that we have constructed simply could not function.
That is why it was so alarming when the price of oil went above $100 a barrel earlier this year for the first time since 2008. Virtually everyone agrees that if the price of oil stays high for an extended period of time it will have a highly negative impact on the world economy.
In particular, the U.S. economy is highly, highly dependent on cheap oil. This country is really spread out and we transport goods and services over vast distances. That is why the following facts are so alarming....
*The average price of a gallon of gasoline in the United States is now 75 cents higher than it was a year ago.
*In San Francisco, California, the average price of a gallon of gasoline is now $3.97.
*According to the Oil Price Information Service, U.S. drivers spent an average of $347 on gasoline during the month of February, which was 30 percent more than a year earlier.
*According to the U.S. Energy Department, the average U.S. household will spend approximately $700 more on gasoline in 2011 than it did during 2010.
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