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Betting on the World Economy: Bank Warns of Global Collapse

Written by:
Jagajeet Chiba
Published on:
Nov/19/2009

Société Générale is advising its customers how to deal with a possible financial collapse in the global market. 

The bank's asset team warned of the following (a la The Telegraph):

Overall debt is still far too high in almost all rich economies as a share of GDP (350pc in the US), whether public or private. It must be reduced by the hard slog of "deleveraging", for years.

 

"As yet, nobody can say with any certainty whether we have in fact escaped the prospect of a global economic collapse," said the 68-page report, headed by asset chief Daniel Fermon. It is an exploration of the dangers, not a forecast.

 

Under the French bank's "Bear Case" scenario (the gloomiest of three possible outcomes), the dollar would slide further and global equities would retest the March lows. Property prices would tumble again. Oil would fall back to $50 in 2010.  

The bank said the current crisis displays "compelling similarities" with Japan during its Lost Decade (or two), with a big difference: Japan was able to stay afloat by exporting into a robust global economy and by letting the yen fall. It is not possible for half the world to pursue this strategy at the same time.

The online financial betting exchange intrade.com was offering a series of trades related to the potential economic collapse. 

Countries such as Iceland and Hungary were predicted to default on their debts before the end of this year.

125 or more US banks were expected to fail during 2009 and that bet was still available even though we were expected to hit that number by this weekend with the tally already reaching 123. Two failures in Florida, including the collapse of Naples-based Orion Bank, and another in California late Friday helped boost the number.  

The Federal Deposit Insurance Corp. estimated the losses from the three failures would total nearly $1 billion.

Barack Obama has warned that the US economy could head into a "double-dip recession" unless urgent steps were taken to rein back America's mounting levels of public debt.

Jagajeet Chiba, Gambling911.com

 

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