By Chris Puplava
Created 2 Sep 2011

It's not just the U.S. economy that is throttling growth back to stall speed but the global economy as a whole. One of the most powerful big picture concepts that has taken place over the last decade is globalization, the interconnectedness of the world economy, and right now it's skating on thin ice.
It's not just the U.S. economy that is throttling growth back to stall speed but the global economy as a whole. One of the most powerful big picture concepts that has taken place over the last decade is globalization, the interconnectedness of the world economy, and right now it's skating on thin ice. While the U.S. may have been the fire starter with its subprime crisis back in 2007-2008, this time it may be the Euro crisis that pulls the global economy underwater. The heart of the matter in the Eurozone and other developed economies is too much debt relative to their productive output-a situation set to intensify as a slowdown in growth (shrinking economies) exacerbates the debt to gross domestic product (GDP) ratios as it becomes more difficult to service debt with shrinking revenue.

You Go, I Go, We all Go

As mentioned in the opening paragraph, investors and economists cannot look at the U.S. in isolation as globalization has become a dominant theme over the last decade. For the past two years corporations have had record earnings with a large portion of revenue coming from overseas, also partly explaining why U.S. markets have performed so well despite this being one of the worst recoveries since the Great Depression. Large-cap blue chip names are benefitting from globalization as they are increasing exposure towards faster growing foreign markets.
That said, globalization is also a double-edged sword. As you can see from the figure below, starting from the early 2000s many global economies started to synchronize, minimizing the previous benefits of diversifying their corporate revenue bases geographically to shield from regional downturns. Now, the leading economic indicators calculated by the OECD for various regions and countries show we currently have an economic slowdown where everyone is getting dragged over a cliff.

Click here to enlarge [1]
As highlighted in my last article ("If You Thought August Was Bad, Just Wait Until September!" [2]), a number of major upcoming economic releases were likely to disappoint, and a U.S. jobs report for August that showed zero job growth is testament to that. However, we did not just have a disappointing economic showing this week domestically, but also worldwide. While the U.S. manufacturing PMI (ISM report) showed the manufacturing base of the country expanding marginally (>50) with a 50.6 reading, we had disappointing PMI readings for August from China and parts of Europe. This can be seen in the figure below for various regions which shows the top five global economies are either in contraction (<50) or just marginally expanding. The bottom panel below is a global GDP-weighted PMI for the world's top five economies (shown individually in top panel) which represents two thirds of global GDP. The top 5 PMI peaked in February at 58.37 and has steadily declined all year to a reading of 50.37 in August, which shows global GDP skating on thin ice and likely to slip into contractionary territory by next month for the first time since June 2008.
Click here for complete article:http://www.financialsense.com/contributors/chris-puplava/2011/09/02/world-economy-hanging-by-a-thread