News Flash! OECD: Decisive Action Required Quickly to Avoid Massive Economic Disruption, a Credit Crunch and a Global Recession

Lorimer Wilson November 19, 2011 Comments Off on News Flash! OECD: Decisive Action Required Quickly to Avoid Massive Economic Disruption, a Credit Crunch and a Global Recession 2,788 Views

Decisive policies must be urgently put in place to stop the euro area sovereign debt crisis from spreading and to put weakening global activity back on track. [If not we can expect to see a] massive escalation in economic disruption, an increase in the risk of a credit crunch [and] the global economy tipping into a recession. Words: 834

So says the OECD (www.oecd.org) in an article* regarding their latest Economic Outlook report.

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has further edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Who in the world is currently reading this article along with you? Click here

The article goes on to say, in part:

The euro area crisis remains the key risk to the world economy, the Outlook says. Concerns about sovereign debt sustainability are becoming increasingly widespread. If not addressed, recent contagion to countries thought to have relatively solid public finances could

massively escalate economic disruption
increase the risk of a credit crunch [from increased] pressures on bank funding and balance sheets
tip the economy into a recession that monetary policy could do little to counter.

OECD Chief Economist Pier Carlo Padoan reported that:”Prospects only improve if decisive action is taken quickly. In the euro area, the risk of contagion needs to be stemmed through a substantial increase in the capacity of the European Financial Stability Fund, together with a greater ability to call on the European Central Bank’s balance sheet. Much greater firepower must be accompanied by governance reforms to offset the risk of moral hazard.”Improved prospects would also depend on the enactment of a credible medium-term fiscal programme in the United States.

Why spend time surfing the internet looking for informative and well-written articles on the health of the economies of the U.S., Canada and Europe; the development and implications of the world’s financial crisis and the various investment opportunities that present themselves related to commodities (gold and silver in particular) and the stock market when we do it for you. We assess hundreds of articles every day, identify the best and then post edited excerpts of them to provide you with a fast and easy read.

Sign up here to begin receiving munKNEE.com’s FREE Financial Intelligence Report

The Outlook’s baseline scenario assumes that policy-makers take sufficient action to avoid:

disorderly sovereign defaults,
a sharp credit contraction,
systemic bank failures and
excessive fiscal tightening

and sees:

GDP across the OECD countries slowing from 1.9% this year to 1.6% in 2012, before recovering to 2.3% in 2013
unemployment in the OECD area remaining high for an extended period, with the jobless rate staying at around 8% through the next two years.

Mr. Padoan went on to say:

“We are concerned that policy-makers fail to see the urgency of taking decisive action to tackle the real and growing risks to the global economy. We see:

the US growth recovering only slowly,
the euro area entering into mild recession and
Japan growing faster because of reconstruction, but this boost is temporary and will fade away.”

GDP is projected:

in the U.S., to rise by 2.0% in 2012 and by a further 2.5% in 2013, after an expected expansion of 1.7% this year,
in the Euro area, to slow down from 1.6% this year to 0.2% next year, before picking up to 1.4% in 2013,
in Japan, to expand by 2% in 2012 and 1.6% in 2013, following a contraction of 0.3% in 2011, which reflects the impact of the earthquake and tsunami and subsequent reconstruction activity and
in China to ease to 8.5% in 2012, from 9.3% this year, before climbing back to 9.5% in 2013. Weaker activity in China and other emerging-market economies together with modest falls in commodity prices should put inflation in these countries on a downward trend, allowing some easing of monetary policy.

World growth will be sustained by the non-OECD countries
Contribution to annualised quarterly world real GDP growth, percentage points

Source: OECD Economic Outlook 90 database. Download the underlying data in Excel

Under the baseline scenario, weak activity, low levels of inflation and predominantly downside risks:

should trigger strongly accommodative monetary policy in OECD countries [with] central banks providing ample liquidity to calm tensions in financial markets and prepare contingency plans that could be implemented swiftly, if needed, but
could trigger an alternative, downside scenario where the outlook becomes much bleaker if there is a continued lack of effective action. This scenario could be prompted by a worsening of existing concerns about the banking system, contagion in euro-area sovereign debt markets or an excessively tight fiscal policy in the United States linked to the current political gridlock.

In the Strategic Response section of its Outlook, the OECD:

identifies country-specific policies that should be implemented if the macroeconomic situation derails,
[advises that] the financial sector must be stabilised,
[advises that] the social safety net [must be] protected,
[advises that] monetary policy [must be] eased further and
[recommends,] where feasible, [that] governments provide fiscal support while strengthening fiscal frameworks to reassure markets that public finances can be brought under control [and that] under this scenario, a wide range of structural measures to boost jobs and economic activity, all desirable in their own right, will become urgent…[to avoid the risk of unemployment] turning from cyclical to structural, thereby sapping potential growth, hitting confidence and weakening public finances.

*http://www.oecd.org/document/47/0,3746,en_21571361_44315115_49095919_1_1_1_1,00.html

Editor’s Note:

Sign-up for Automatic Receipt of Articles in your Inbox or via FACEBOOK | and/or TWITTER so as not to miss any of the best financial articles on the internet edited for clarity and brevity to ensure you a fast an easy read.

Related Articles:

1. Where Is This Unprecedented Global Financial Crisis Headed? A Retrospective from Alf Field

Everyone must be wondering where this “unprecedented global financial crisis”, (the World Bank’s words), is heading. What follows, for what they are worth, are my cogitations on this crisis. Words: 1641

2. Market Fear and Uncertainty Is Inhibiting Economic Growth – These 8 Charts Show How

The market believes that there is more profit to be made in speculation than in new business investment – and speculation is what you get when you weaken the incentives to invest in productive activities for the long haul. In fact, fear and uncertainty are inhibiting growth [- almost everywhere – as shown in graphic form in the 8 charts below]. Words: 1000

3. Continuing High Unemployment = More Money Printing = Higher Gold & Silver Prices

The Federal Reserve has a dual mandate set by Congress of maximum employment and stable prices. During Chairman Bernanke’s most recent press conference he indicated that the Federal Reserve has done a better job of maintaining price stability while falling short of fostering maximum employment. [As such,] we believe the Federal Reserve will continue to increase the monetary base and weaken the dollar as long as unemployment remains elevated. While the economy (measured by real GDP) and the unemployment rate have not benefited from a substantial increase in the monetary base, the price of gold and silver have benefited from money printing. We believe this statement is quite important for monetary policy and for investors. [Let us explain further.] Words: 388

4. There Are 2 Ways Out of Global Economic Mess – Hope for One of Them & Prepare for the Other

It all comes down to this: We have to match growth to debt. If we can’t create miracles from growth, we have to consider inflation to reduce the value of our debt. [Those are the] only two ways out of our current global economic mess – innovation and inflation. As the saying goes, we should hope for the best (more innovation) and prepare for the worst (higher inflation). [Let me explain why that is the case.] Words: 1195

5. To What Extent Would European Recession Adversely Affect Your State’s Economy? Take a Look

The greatest risk to the United States economy right now is a recession triggered by the European financial crisis. [Below is a chart that clearly depicts each of the 50 states exports to Europe as a % of GDP. You will be surprised at what it reveals. Take a look.] Words: 235

6. Alf Field’s 7 “D’s” of the Developing Disaster Revisited

When the supply of something is increased sharply relative to demand, the value of that commodity will decline. If the supply continues to increase rapidly and indefinitely, then that item will become worth less and less, with the potential to finally become nearly worthless. This is the Developing Disaster facing the US Dollar and the world. This is the factor that could become the single most important criterion in investment allocation decisions and possibly even for individual financial survival…[Let me explain this further by reviewing the 7 major problems facing the U.S. (and thus the world) and how they all will lead to problem #7 – devolution.] Words: 1520

7. Alf Field: America’s Current Account Deficit Causing World’s Financial Crisis! Here’s Why

The onset of the world’s worst financial crisis in many decades is one of the most important factors (if not the most important factor) currently influencing investment decisions. The crisis has created chaos and confusion. Not many people understand how the world has arrived at this unfortunate situation. This report endeavours to identify the underlying causes of the crisis and explains why the USA current account deficit has been the main destabilising force in world finance. Words: 3806

8. Yes, the Debit Crisis Could Spread To The U.S.! Here’s Why

[Unfortunately,] for the U.S….its budget deficit is growing in spite of the fact revenues into the treasury continue to grow…Given the low level of interest rates on the Treasury’s debt it would not take much of an interest rate spike in the U.S. to negatively impact the government’s budget. [So, in reply to the unspoken question on everyone’s mind, “Yes, the debit crisis could most definitely spread to the U.S.” Let me explain further.] Words: 633

9. Niall Ferguson: U.S. Playing “Russian Roulette” Assuming Interest Rates Will Remain Low

Countering Krugman’s argument that today’s low interest rates show that no one is worried about lending money to us and, therefore, that we should borrow and spend our way to prosperity, Ferguson argues that today’s interest rates are irrelevant. When countries get into trouble, he says, they get into trouble quickly – the way Greece and […]

10. These Amazing Graphics Show Why Europe’s Financial Crisis is Globally Intertwined

The global financial system is highly interconnected so problems in one part of the world can reverberate almost everywhere else – risking a default, contagion, contracting credit and collapsing economic activity… [Take a look at the amazing graphic in this article to get] a visual guide of the intertwined complexities of the crisis.

11. The Global Debt Clock: A World Debt Comparison

The clock is ticking. Every second, it seems, someone in the world takes on more debt. The idea of a debt clock for an individual nation… [is old hat – see links below to many such debt clocks – but] our clock (here) shows the global figure for all (or almost all) government debts in dollar terms. Words: 300

12. These 10 Charts Illustrate America’s Disastrous Fiscal Condition – Take a Look (and Weep)!

By now nobody should have any doubts as to just how disturbing America’s fiscal debacle is. For those naive and innocent few who still think there is a Hollywood ending with a pot of gold awaiting everyone at the end of the rainbow, we present the following “10 essential fiscal charts” from the Pew Policy Institute.

13. Debt Bubble: We’re in a Dangerous New Phase – Here’s Why

The head of the International Monetary Fund, Christine Largarde, said Friday the world economy is entering a “dangerous new phase.” Lagarde is referring to a debt bubble, the likes of which the planet has never seen before, and the possibility that it could all unravel at any moment. Uncertainty over the debt crisis in Europe is what caused the Dow to crash more than 300 points at the end of last week. What is Lagarde going to do about the debt problem? Words: 1752

14. Brace for Impact: U.S. About to Go Off a Financial Cliff!

The kind of impact [our economy is] going to have will not be like flying into the side of a mountain. It will be the kind of crash that skids over land, clipping trees and buildings until the plane ends up wingless in a smoldering heap. I just hope the fuel tanks don’t ignite when the long rough ride is over. [Let me explain.] Words: 832

15. Another Economic Collapse and Great Depression are Coming! Here’s Why

It really is hard to find the words to describe the true horror of the national debt of the U.S. The U.S. government has been on the greatest debt binge in all of human history, and a day of reckoning is coming that is going to be so painful that it is going to shock America to the core. We have lived so far above our means for so long that none of us really has any concept of what “normal” is like anymore. The United States has enjoyed the greatest party in the history of the world, but now this decades-old party is ending and the bills are coming due. Our current system is headed for an inevitable collapse. There is no way of getting around it – a horrific economic collapse is coming [and] it is going to change the world. You better get ready. [Let me explain further.] Words: 1771