Here are some interesting dynamics in the financial world that may generate instability and conflict in the not too distant future:
- Globe. The first world is still awash in debt, bad actors in the financial industry still dominate, and destabilizing financial connectivity remains ($600 trillion in derivatives).
- US. Government deficits are still well north of $1 trillion. The housing sector is about to take another deep dive as banks unload their swollen property inventories. Consumers will be worse off than they already are. Bank books are still abysmal. Municipalities and states are broke and many are close to default. A big negative economic impact from the Gulf spill looms (the leak may continue until the reservoir depletes).
- EU. Big sovereign defaults. Greece, Portugal, Spain, and onwards. There's been a breakdown in the social compact in the EU, which will create high levels of instability and lessen the chance of any resolution.
- China. The bubble in property speculation is about to collapse as the government puts on the brakes. As much as 60% of China's GDP is estimated to be tied to construction.
Unfortunately, all of this is lining up to generate a replay of 2008 but worse. It will be worse this time around because it will be a) more widespread and b) much of what government's could do to stop it has already been done.