A World in Crisis?

Having looked at the first five of the Ten Commandments, it’s time to take a break and discuss some other issues. One of the most pressing is the state of the global economy.

With Greek elections coming up this weekend and the leaders of Europe holding an economic summit towards the end of the month, it’s appropriate to ask whether the world’s economy is in crisis. Unemployment in the US is stubbornly high, and it’s worse in Europe. Their finances are in a shambles, with over-indebted countries paying very high interest even as their economies contract. Falling demand in Europe contributes to slowdowns in China, India, and Brazil, affecting US exports as well.

But is this a crisis? In the US we are seeing slow growth, but it is growth. It’s as if we are driving a car with a manual clutch stuck in first gear. At faster speeds the car can’t get into second or third gear, the engine over-revs, and pulls the speed back down. In Europe, their currency union is like a squabbling family, where Mom and Dad (France and Germany) argue about how to reign in—or cut off—various children. Some (like Italy or Spain) are facing hard times, but are essentially good kids. Others (like Ireland and Portugal) ran amok some years ago, are taking their medicine now.

And then there is Greece. This feckless teenager had a big party and now faces the consequences. It’s unclear whether they will buck up or bolt. If they leave the family, it could strain everyone’s finances, because they’ve all lent Greece money.

But the challenges in Europe are only part of a growing global economy. Increasing innovation and productivity are lifting consumer demand around the world, even as energy prices fall. Family feuds and car trouble won’t stop this process. Do we have issues? Yes. Is it a crisis? No—at least, not yet.

By |2012-06-15T06:14:17+00:00June 15th, 2012|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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