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In other words, despite massive money creation, nothing's been resolved. In fact, conditions now are worse than when trouble began. For the moment, they're contained by throwing money at them.
That only works so long. Longer-term, it's a losing strategy doomed to fail, especially as unemployment rises, wages and benefits fall, safety net protections erode, public anger grows, and politicians offer no solutions.
The IMF's nearly as glum. It's predicting 3.3% growth in 2012, down 0.7% from months earlier. It also warned about "intensifying strains in the euro area" and fragilities elsewhere. They suggest "weaker underlying growth" ahead.
"(D)ownside risks (have) risen sharply," especially from "the intensification of adverse feedback loops between sovereign and banking pressures in the euro area."
The combination of high bond rates, massive debt levels, eroding consumer purchasing power, and troubled banks pressure governments to help. Moreover, Europe's trouble assures spillover.
Overall, the IMF sees the "current environment - characterized by fragile financial systems, high public deficits and debt, and (short) interest rates close to the zero bound - provides fertile ground for self-perpetuating pessimism and the propagation of adverse shock, the most critical of which is the worsening of the crisis in the euro area."But trouble there spreads it everywhere. Unless "healing" occurs, a "1930s moment may arrive....where trust and cooperation break down and countries turn inward. (A) downward spiral....engulf(ing) the world" could result.
Meanwhile, China's slowing. Japan's in recession, and Europe's sickest of all. It's sinking while real Japanese GDP is expected to contract by 0.4% in the year ending March 2012. Headwinds may force down the Bank of Japan's 2% 2013 growth forecast because of protracted economic weakness.
New McKinsey Global Institute (MGI) Report
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