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Leftist Agitator

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Member since: Thu May 24, 2007, 05:50 PM
Number of posts: 2,759

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Get ready for it: Another economic collapse is coming.

The topic of Greece has been in the news over the past week, because no nation in Europe has experienced the depth of malaise that Greece has. Other European nations, including Spain, Italy, Ireland and Portugal are afflicted with many of the same problems that Greece is currently saddled with. The question on everyone's mind is whether or not the Euro can be saved. Regardless of whether one believes that the Eurozone can continue to exist as a viable sociopolitical entity (personally, I don't), there are several leading indicators of economic trouble on a global scale. Right now, one of those indicators is displaying behavior that should deeply concern everyone.

Meet the Baltic Dry Index: http://www.bloomberg.com/quote/BDIY:IND/chart

The Baltic Dry Index, as defined by Wikipedia, "The index provides 'an assessment of the price of moving the major raw materials by sea. Taking in 26 shipping routes measured on a timecharter and voyage basis, the index covers Handymax, Panamax, and Capesize dry bulk carriers carrying a range of commodities including coal, iron ore and grain.'"

Basically, the Baltic Dry Index serves as a proxy for total global economic activity. No matter where a good is produced, unless the purchaser's destination is on the same continent, that good will, in all likelihood, be shipped in cargo containers on an oceangoing cargo vessel. As economic activity waxes and wanes, the Baltic Dry Index rises and falls, just as any other measure of economic activity. But the interesting thing about the Index is that it rises and falls ahead of major economic events, such as the devastating collapse of global financial markets that we endured in 2008. If one clicks on the link above, and checks the 5 year chart, one will notice that the Index peaked at 11,623 on 6/4/2008, more than three months before the economy came crashing down in tandem with the house of cards that Wall Street built. In fact, by the time the great sell-off on Wall Street began and Bernanke and Paulson were scheming for the $700 Billion bailout of the financial industry, September 18, 2008, the Baltic Dry Index had already fallen to 4,856. The value of the Index would continue to fall, bottoming out at 666 on 12/4/08, for a loss of nearly 95% of its value from its June 2008 peak.

What relevance does this have today? Well, I typically keep abreast of the value of the Baltic Dry Index because it is such a sensitive indicator of where the level of global economic activity is headed, but for the past two months, I've been very busy with grad school and an internship, so I haven't had much free time. Today, I read a thread posted by DUer Zalatix, that reported on a massive drop in retail gasoline deliveries. You can read his thread here: http://www.democraticunderground.com/1002312856

After seeing this trend, which functions as another type of leading economic indicator, I began to wonder how the Baltic Dry Index had been performing since I last checked. As one will note from the chart, the Index recovered to 4,291 on June 3, 2009 (almost one year to the day after its peak value), and has generally been valued in the 1,200 - 2,000 rang for most of the last year. In fact, the post-2008 low for the Index was 1,043 on 2/04/11. Since December, the value of the Index has absolutely cratered, relative to what it has been for the last few years, post-collapse. On February 3 of this year, 2012, less than two weeks ago, the Index was valued at 647, a figure lower than the one recorded at the absolute worst of the previous crisis. And although the value of the index has recovered somewhat, to 734, the fact remains that the precipitous drop in the index indicates that the global economy is barely moving, relatively speaking.

We're teetering on the brink... Right now, total economic activity is so low that all it will take is one major incident to tip the world into a full-blown, capital "D" Depression. And with the turmoil in Greece, the constant saber-rattling between Israel, the U.S. and Iran, and God only knows how many more potential trouble spots, we may very soon find out just which straw it will be to break the proverbial camel's back.

I hope and pray that my analysis is incorrect, but the fundamental situation is what it is, and barring a miracle, I don't see any way for the world to avert an economic disaster of unrivaled proportions. The carnage of the First World War, which claimed 20 million human lives, began with a young Serbian nationalist, Gavrilo Princip, assassinating the Austrian Archduke Franz Ferdinand. This act of political terrorism plunged the entire European continent into a conflict that was, at the time, unparalleled in human history. Similarly, all it will take to plunge the entire world into an equally unparalleled global Depression is a single economic shock to any of the world's major economies. We are poised on the edge of catastrophe, and in closing, I reiterate the advice that I offered in the title of this thread, "Get ready for it."

Posted by Leftist Agitator | Wed Feb 15, 2012, 01:13 PM (43 replies)
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