Zero Hedge
December 2, 2011
December 2, 2011
Despite the very short term bounce in markets on yet another soon to be failed experiment in global liquidity pump priming, UBS’ Andrew Cates refuses to take his eyes of the ball which is namely preventing a European collapse by explaining precisely what the world would look like if a European collapse were allowed to occur.
Which is why to people like Cates this week’s indeterminate intervention is the worst thing that could happen as it only provides a few days worth of symptomatic breathing room, even as the underlying causes get worse and worse. So, paradoxically, we have reached a point where the better things get (yesterday we showed just how “better” they get as soon as the market realized that the intervention half life has passed), the more the European banks will push to make things appear and be as bad as possible, as the last thing any bank in Europe can afford now is for the ECB to lose sight of the target which is that it has to print. Which explains today’s release of “How bad might it get“, posted a day after the Fed’s latest bail out: because instead of attempting to beguile the general public into a false sense of complacency, UBS found it key to take the threat warnings to the next level. Which in itself speaks volumes. What also speaks volumes is his conclusion: “Finally it is worth underscoring again that a Euro break-up scenario would generate much more macroeconomic pain for Europe and the world. It is a scenario that cannot be readily modelled. But it is now a tail risk that should be afforded a non-negligible probability. Steps toward fiscal union and a more proactive ECB, after all, will still not address the fundamental imbalances and competitiveness issues that bedevil the Euro zone. Nor will they tackle the inadequacy of structural growth drivers and the deep-seated demographic challenges that the region faces in the period ahead. Monetary initiatives designed to shore up confidence can give politicians more time to enact the necessary policies. But absent those policies and sooner or later intense instability will resume.” So what exactly does UBS predict will happen in a scenario where the European contagion finally spills out from the continent and touches on US shores?
Here’s what:
We stressed that the most obvious downside risk to our new forecasts would be a further intensification of the European debt crisis and an even greater degree of regional and global financial instability, alongside perhaps even a break-up of the euro. But what would those risks invoke for the world economy?
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