US, Chinese and UK bad news causes Vix gauge spike

The FTSE is having a bad day, and the Dow has opened to an even steeper rate of decline. As an opening shot to give OPEC fair warning that trying to ransom recovery prospects will get them nowhere, the International Energy Agency agreed to release 60m barrels of oil in the coming month to offset the loss of 1.5m barrels a day production of high quality oil from Libya.

Prime mover in the IEA is of course the US, and this will give Obama a period of time during which UK petrol consumers can feel a price decrease. But politics aside, there is no way the Agency would’ve released these strategic reserves if it saw a world recovery coming. The fact is, the outlook remains dreadful: purchasing managers’ indices for the eurozone plunged during June, indicating  the slowest pace in almost two years. The deceleration was especially strong in manufacturing.

Meanwhile, experts from the European Union, International Monetary Fund and European Central Bank – ‘the Greek Troika’ – have identified a further financing gap of €5.5bn in the four-year programme of fiscal and structural reforms. As we saw last Sunday evening, the IMF (aka Geithner) and the EU (aka Merkel) think they’re pulling a clever stroke here: with a new and finacially inexperienced kid on the block, this is a deliberate intensification of pressure on Angelo Venizelos to make specific commitments on new targets not as minutely quantified as in previous doucmentation. Too clever by half would be my reading.

In the States yesterday, Bernanke kept up with Zirp rates, and offered no sign at all of QE3. He called US growth figures ‘disappointing’, and his view was confirmed by stagnant job creation figures this morning.

In London, Mervyn King told the Evening Standard that rates would be held at Zirp “probably until July 2012”. I think that is a fantasy personally, but it looks like the Osborne MPC appointee from Goldman Sachs is doing as he’s told.

And in China, near-stalling of factory output reflects the tougher stance being taken by Beijing to control economic overheating….but confirms the slowdown there.

This is what the robotic observers of economic and bourse data call ‘a reining in of risk’.Put like that, it sounds like a terrific idea – what a shame we didn’t do it in 2004. But in 2011, it is a precursor of bad stuff to come.

Without being too simplistic, cooling down is a good thing for the Asian tigers, and a death sentence for every Western sovereign debtor.

It means that falling output (and thus even less money to pay off debt) makes things worse for Greece, Ireland, Portugal, and Spain. It means that in the US, either taxpayers cough up more to maintain national debt debt repayment, or Congress has to substantially raise the debt ceiling. With consumption falling and an election coming, you can see which way that cookie is going to crumble. And it means that for the banks in the eurozone, they have a rising wave of probable defaults to face….and the longer the defaults are delayed, the bigger and more destructive they will be.

Push is at last coming to shove: this is Crash 2 unfolding before our eyes. And the rising anxiety isn’t being helped by a breakdown in Washington talks on the US budget ceiling.The Vix index, known as Wall Street‘s fear gauge, has spiked 14%, and is back above 21. As I write, the FTSE global index is down 2%. The FTSE 100 has now fallen 6.8% since February….but today’s FTSE all index loss alone was 1.7%.

Most human beings think in a linear fashion; indices of acceleration, and acceleration of collapse becoming exponential, are concepts beyond most people. But it never fails to come true. Stagnation is running alongside inflation delivered by currency devaluation, debts are rising hourly, and the parochial political considerations are getting in the way.

You read it here first: as the debt forgiveness window closes, smashing our way through it is going to get increasingly destructive and expensive. We are running on empty….and running oout of time.