Here’s a laundry list of world economic problems from CBS News:
The focused has been on Germany over the past week, the weakly beating heart of the still-troubled eurozone, where industrial production, factory orders and export activity all posted the worst results since early 2009 amid chatter that the country is on the verge of falling back into a technical recession.
Separately, France is having budget woes. And the eurozone debt crisis threatens a comeback as credit rating agencies issue new warnings and the market starts to realize that the European Central Bank can no longer bluff its way out of trouble. It now must step up with a bona fide sovereign bond-buying stimulus program (which could be illegal according to its charter and is unpopular idea with the Germans) after playing at one for more than two years.
Japan is also at risk of falling back into technical recession (GDP growth already contracted last quarter) as a recent sales tax hike and the negative impact of a very weak yen (higher food, fuel and import costs) pinches consumers.
Japan has been held together by the idea that the Bank of Japan would issue more cheap money stimulus and further slam the yen if the economy faltered. But economists are realizing that a weak yen is hurting more than it’s helping at this point. And given Japan’s massive 227% national debt-to-GDP ratio (vs. around 100% for the U.S.) time is running out.
And in China, the People’s Bank of China is watching as electricity production contracts outright for the first time since early 2009, an anecdotal sign that China’s economy has hit a wall.
The second reason is that the U.S. Federal Reserve is watching as its efforts to merely return monetary policy to a more neutral footing — by bringing to an end the QE3 bond-buying program and looking ahead to the first interest rate hike since 2006 — has resulted in a volatile corporate bond market and a massive rally in the U.S. dollar.
This has crushed commodity prices, tightened credit to foreign economies (many of which have grown dependent on borrowing at low rates in cheap dollars) and threatens to slow U.S. GDP growth by pinching American exports.
It goes on after that…
No mention of root causes here. I keep repeating myself all the time redundantly but some potential root causes, which are not mutually exclusive are (1) the world is still feeling effects of the 2007-8 financial crisis, in a classic depression and loss of demand and confidence scenario, (2) rich people and corporations are driving government policy in their favor to the point that inequality has gotten so bad it has broken our economic system, with the middle class and working class not having enough incentive (i.e. income) to be productive, (3) technology and automation are putting strong downward pressure on middle class and working class wages, (4) climate change and natural capital depletion are starting to be felt in energy and food prices, putting a head wind on economic growth, with “green” technological progress not enough to lessen or reverse environmental impacts, or (5) innovation and technological progress in general have slowed down and are not driving economic growth like they have over the past century or so.