Citi: Economy in 'Death Spiral'


Some analysts — including those at Citi — have turned bearish on the world economy this year, following an equity rout in January and weaker economic data out of China and the U.S.

“The world appears to be trapped in a circular reference death spiral,” Citi strategists led by Jonathan Stubbs said in a report on Thursday.

“Stronger U.S. dollar, weaker oil/commodity prices, weaker world trade/petrodollar liquidity, weaker EM (and global growth)… and repeat. Ad infinitum, this would lead to Oilmageddon, a ‘significant and synchronized’ global recession and a proper modern-day equity bear market.”


Stubbs went on to say that “Rational behavior, most likely, will prevail.” However, I’m not sure how to square that with President Obama’s “victory lap” a few minutes ago, as reported by ABC News:

Obama says the U.S. has “the strongest, most durable economy in the world.” He pointed to wage and income growth, job growth, lower oil prices and increasing health insurance as evidence of that claim.

The president says those recent numbers are inconvenient for Republicans who are talking down the economy. He accused Republican presidential candidates of being on a “doom and despair tour” in New Hampshire.

Rather than rebut the president’s statement point-by-point, I’ll simply point out that the loudest candidate on the “doom and despair tour” may very well be fellow Socialist Democrat Bernie Sanders. And if Quinnipiac’s most recent poll is to be believed, Sanders’ doom & despair message is resonating with Democrat voters more strongly than Hillary Clinton’s embrace of Obama’s record.

Of note is that until the economy melted down in September of 2008, John McCain was tied with Obama or even slightly leading in most polls. Then McCain “suspended” his campaign and returned to Washington — only to get rolled on live TV by Nancy Pelosi, Harry Reid, and his rival Barack Obama.


So the lesson here isn’t just that the economy can have unexpected effects on an election, but that a serious crisis can cause candidates to make …quirky… decisions, or to take rash action. We can and should hope that “rational behavior will prevail,” but we can’t count on it once the politicians get involved.

The 2008 crisis showed that McCain did not have the mettle to be president. I wonder what we’ll learn if and when the stuff hits the fan this year.


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