In today's world, the health of the global economy is closely tied to U.S. economic policy which, under the Bush administration, can be readilly described with one word: Unsustainable. Unsustainability seems to have been the hallmark of the past few years, and represents a diversion from traditional republican politcs. And now for the fallout...

To briefly recap, In December 2008, Crude traded at $25, S&P 500 fell 50% to 500, China’s GDP growth fell to zero, the EURUSD fell to 0.95, and Italy announced its decision to abandon the ERM.

According to Saxo Bank’s predictions for 2009, we are on a collision course with the global economic all-around lows, and the worst economic situation since the Great Depression. This time, however, the effects are being felt around the word thanks to a largely integrated global economy. Not that interconnectivity is a bad thing, but fiscal irresponsibility certainly is, and now the global economy is demanding payback. According to Saxo's predictions, economic conditions will continue to worsen before they get better. That's right, folks. We have yet to experience the full impact of the financial deregulation, irresponsibility, and greed that have plagued the past few years. According to Saxo's Cheif Economist, David Karsbøl “The good thing is, overall, we predict 2009 will be a turning point because it can’t get much worse." Yes everybody, we have mucked things up so badly that the good news is that things are so bad that they can only get better. That is indeed a sad state of affairs, is it not?

At this point, I hope that readers are asking themselves, "But who are these know-it-alls and what is their track record for making economic predictions?" Sadly, Saxo's annual predictions have been highly accurate in the past. As for who they are, Saxo Bank is a Copenhagen-based firm of online trading and investment specialists. They compiled their annual predictions as part of the 2009 Outlook and Thought Exercise, which is an annual attempt to predict ‘black swan’ sightings in the global markets, and this year presents a dismal view as such. Black swan events are high impact, rare occurrences that are beyond the realm of normal expectations. Of course, the word "normal" is often used subjectively, and occurances that used to be truely outrageous and now considered to be the norm. Can that change?

U.S. Economy Shrank 3.8 Percent In Fourth Quarter    NPR.org reports that the U.S. gross domestic product dropped at a 3.8 percent annual rate in the last three months of 2008, the Commerce Department reported Friday. The GDP report marked the latest evidence of the depth of the recession and followed a week of multiple announcements of layoffs by American corporations. 

Here are the 10 events that Saxo predicts for 2009.  The Cheif Economist comments that he hopes not all of the ten predictions with come true, but that at least some of them certainly will.  Brace yourself and read on:

1) Social unrest will plague Iran as lower oil prices affect the government's ability to buy supply of basic necessities for it's population.

2) Crude oil will sell for US$25 as demand slows down. This will be due to the worst global economic contraction since the great Depression. (That's right, they used the dreaded "D-word," Depression.)

3) The S&P will reach 500 in 2009 because of falling earnings. This will cause housing equity to almost vanish and will increase the cost of funds for corporations.

4) The European Union is likely to take action on excessive government budget deficits in several member states. Italy might follow up on previous threats to leave the ERM completely.

5) The AUDJPY will drop to 40. The decline in the commodities markets will negatively affect the Australian economy.

6) EURUSD will fall to 0.95 and then rise back up to 1.30. Why? European bank balances are under tremendous pressure because of exposure to the faltering Eastern European markets and many intra-European economic tension-causing issues.

7) Chinese Gross Domestic Product (GDP) growth drops to a great big zero. The export-driven sectors in the Chinese economy will be hurt rather badly by the virtual free-fall of the Global Trade, and especially of the United States.

8) Several of the Eastern European currencies currently pegged or semi-pegged to the EUR will be under increasing pressure due to capital outflows in 2009. Results could be severe.

9) The Reuters/ Jefferies CRB Index to drop 30% to 150. The commodity bubble is bursting, with speculative excesses so enormous they have skewed the demand and supply statistics.

10) Finally, 2009 will see the first Asian currencies to be pegged to the CNY. Asian economies will continue to look to China in the search for new trade partners and to replace some of the U.S. heavy trade.

So tighten your belts, everyone. We cannot continue paying ourselves more than we can afford. It is time to face the metaphorical music.

With a new administration installed, and a new understanding of the depth and severity of the economic problems, the United States House of Representatives has approved an $819 billion economic stimulus package critical to President Barack Obama's plan to revive the economy. If that sounds like a lot of money, here is a comparison: The U.S. had spent $1.3 trillion (yes, trillion) on the war in Iraq as of February 2008.

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