by Michael Snyder
July 26, 2012
The economic crisis that is sweeping Europe is starting to hit Britain
Over the last couple of years economists have
been warning that we can't let the "contagion" spread from troubled nations
such as Greece and Portugal to the rest of Europe. Well, it is too late for
that now. Spain and Italy are coming apart at the seams at this point, and
even "stronger" nations such as the UK and France appear to be deeply
According to numbers that were released just
this week, the UK economy has now contracted for three quarters in a row.
During the second quarter of 2012, the UK economy
shrunk by 0.7 percent.
That was a much larger contraction than the 0.2 percent contraction that
economists were forecasting. At this point we have got a definite trend
During the fourth quarter of 2011, the UK
economy shrunk by 0.4 percent. During the first quarter of 2012, the UK
economy shrunk by 0.3 percent. And now in this latest quarter the
contraction of the UK economy appears to be accelerating.
This economic downturn in the UK is
"the longest double-dip recession for more
than 50 years".
So will Britain soon look like Greece and Spain
and Italy or will it be able to pull out of this nosedive in time?
The UK construction sector was hit particularly hard during the second
quarter. It contracted
by 5.2 percent, which was the biggest decline since
the first quarter of 2009. Consumer confidence has reached a
historic low in
Britain and economic gloom is seemingly everywhere.
So what does the future hold for Britain?
Unfortunately, things do not look promising at all right now.
At this point, the budget deficit of the UK government is still about
percent of GDP, and British politicians are promising to reduce that
significantly. That means that more austerity measures are coming for
Britain and less government money will be flowing into the economy.
So the economic slowdown is very likely to get even worse. But of course we
have been seeing the same kind of thing happening all over Europe.
Economists are warning once again that Greece is on the verge of declaring
On Tuesday, the Telegraph ran a story with the following startling headline:
"Debt crisis: Greece to run out of money by August 20".
Haven't we heard this before? Yes, we have. And every time, European leaders
have gotten together and "fixed" the problem.
But of course they didn't really fix anything. They just kicked the can down
the road a little while and things just kept getting worse.
At this point the Greek economy has been in a depression for several years.
In fact, the Prime Minister of Greece is now even openly using the word
"depression" to describe the state of the Greek economy.
So just how bad are things
in Greece right now? It is being projected that
the Greek economy will contract by a total of
7 percent during 2012.
But Greece is not alone. Other southern European nations are on the exact
same path that Greece is on. For example, Italy is rapidly becoming a
gigantic mess as well.
The national government is drowning in debt, the
economy is in recession and today came a warning that 10 major Italian
on the verge of bankruptcy...
The cities at risk of running out of money
include Naples, Palermo in Sicily and Reggio Calabria, on the toe of the
Italian boot, according to the Italian press.
"The situation is becoming worse by the
day," said Graziano Del Rio, the president of a national association
of municipal councils.
The warning came just days after Mario Monti,
the prime minister, expressed fears that Sicily, which has a high degree
of fiscal autonomy, was on the brink of a default.
But the country making the biggest headlines
this week has been Spain.
Spanish bond yields have been soaring, the
Spanish stock market
has been crashing, the Spanish banking system is on the
verge of collapse and now regional governments all over Spain are coming
asking for bailouts.
As the national government attempts to impose even more austerity measures
on the Spanish people, violent protests are erupting all over the country.
You can see footage of some of the recent violence in Spain
So why is all of this happening? Well, the truth is that this is not a
liquidity crisis. If it was, the central banks could flood the system with
money and solve the problem.
No, what Europe is facing is an insolvency crisis. There is way, way too
much debt in the system and it is inevitable that an "adjustment" is going
Marketwatch article detailed how the global debt bubble has
continued to grow even in the midst of the economic problems of the past few
Balance sheets of major central banks have
increased to $18 trillion from around $6 trillion, reflecting an
unprecedented 30% of global gross domestic product.
Mr. Economy is now addicted to monetary heroin. Increasing doses are
necessary for the patient to function at all.
Mr. Economy has not made the changes necessary for a return to full
health. He seems to have taken rock star Steven Tyler’s advice: “Fake it
until you make it.”
Borrowing levels remain unsustainable. Debt levels for 11 major nations
have increased to 417% of GDP in 2012 from 381% of GDP in 2007. Debt has
increased in Canada, Germany, Greece, France, Ireland, Italy, Japan,
Spain, Portugal, the U.K. and the U.S.
These debt levels are not sustainable.
is going to happen.
Hopefully the collapse will be at least somewhat orderly, but there is also
a good chance that it could be completely chaotic.
Some that have analyzed the situation are very pessimistic at this point.
For example, the following is from a
recent article by
In simple terms, today we are facing a
Crisis that is far, far worse than 2008. Before it ends, it is quite
possible that we will see the entire Western Financial System collapse
and a new system put into place.
This will mean:
Many major banks disappearing, as
well as numerous potentially lengthy bank holidays (think
Argentina in 2001)
Multiple sovereign defaults as well
as broad economic contractions and their commensurate
unemployment/ civil unrest/ erasure of retirement accounts/
pensions (this process has already begun in some US municipals,
e.g. San Bernandino and Stockton California as well as
Possibly new currencies being
introduced or new denominations of currencies (say one new unit
being worth 1,000 of the old one)
Massive wealth destruction to the
tune of tens of trillions of Dollars (think MF Global i.e. the
money is gone… only systemically… in fact we just had another
such instance with PF)
A global contraction that will
result in new political/ power structures being implemented as
well as the breakup of various countries/ unions.
Very serious trade wars to begin
(see Obama’s recent attack on China) and very possibly a real
Many Americans do not pay much attention to what
is going on over in Europe because they do not believe that it will affect
But the truth is that Europe has a bigger population than we do, a bigger
economy than we do, and a much bigger banking system than we do. The global
financial system is more interconnected than ever, and what goes on over in
Europe is going to have a dramatic impact on the United States.
In fact, already there are a whole host of signs that the U.S. economy is
starting to tip into
another recession. So let us definitely hope for the
best, but let us also get prepared for the worst.
A great storm is on the horizon, and it would be quite foolish to ignore it.