Former Fed insider Danielle DiMartino Booth is not optimistic for a prosperous New Year in 2019. DiMartino Booth explains, “We could easily see a very sharp decline in the first quarter in economic output. We have had a lot of companies and firms do what we call ‘panic buying’ because of the potential raising of tariffs on Chinese goods from 10% to 25%. So, we had a lot of supply pulled forward. There is not a lot of demand on the other end of that for this tremendous inventory restocking cycle we just went through. Then companies are going to slam on the brakes and stop buying in the first quarter. That could really be detrimental to economic health. . . . If (Fed Head) Jay Powell sees the real economy slowing, then I believe he will pause this tightening campaign in early 2019.”
The other big problem DiMartino Booth points to is the staggering “$250 trillion in global debt.”
Would it take a big recession to blow it all up? DiMartino contends, “You don’t need a lot to let the credit genie out of her bottle. When you are looking at $8.6 trillion in debt globally with negative interest rates, that means your runway is very, very short. You could set off a bomb . . . in the European banking system. It never cleaned up to the extent as American banks. The financial system is as interconnected as it was (in 2008) . . . and we don’t know how risk would play out. We do know that we are interconnected enough for a hiccup in one country to have global ramifications. . . . My fear is much more based in China as well as a United States economy that is clearly slowing at this point.”
The EU and Germany are also slowing down. This is happening when the European Central Bank (ECB) is starting to tighten monetary policy. DiMartino Booth says, “They (ECB) are going to stop expanding their balance sheet. They are the only buyer of Italian debt. Italy has the third largest sovereign bond market in the world. There a lot of things that could go wrong, just like what happened in 2007, 2008 and 2009 when the liquidity dries up. That is something too few people understand. 90% of assets in the world had a negative return in 2018. Why did the U.S. stock market avoid such a fate? I got two words for you–share buybacks. Liquidity. It all comes down to liquidity. If companies like General Electric are going to run into issues and have their bonds trade into junk territory . . . if we see more of these going into 2019, these are problems that cannot be resolved easily and neatly when we have the level of debt percolating around in the world today. You don’t know where the risk is going to land.”
What about a giant global debt forgiveness such as a debt jubilee? DiMartino Booth warns, “I am not so sure something like a debt jubilee, where all countries are supposed to hold hands and sing kumbaya, I don’t know that scenario necessarily unfolds. . . . The debt will not be forgiven willingly.”
DiMartino Booth founded Quillintelligence.com. There is some free information there. She also offers a subscription service for original analysis called “The Daily Feather.” To become a subscriber click here.
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Greg is the producer and creator of USAWatchdog.com. The site’s slogan is “analyzing the news to give you a clear picture of what’s really going on.” The site will keep an eye on the government, your financial interests and cut through the media spin. USAWatchdog.com is neither Democrat nor Republican, Liberal or Conservative. Before creating and producing the site, Greg spent nearly 9 years as a network and investigative correspondent. He worked for ABC News and Good Morning America for nearly 6 years. Most recently, Greg worked for CNN for shows such as Paula Zahn Now, American Morning and various CNN business shows.