We are fast approaching the stage of the ultimate inversion: the stage where the government is free to do anything it pleases, while the citizens may act only by permission; which is the stage of the darkest periods of human history, the stage of rule by brute force.” — Ayn Rand
Excerpted from: Leap2020.eu" GEAB N°42, February16,2010
". . . behind the « sophisticated » dissertations on the exit from the crisis and the end of the policies of support for the economy and the financial sector hides a very simple truth, but one which governments and central bankers are unable to express: they don’t know what to do? when to do it? how to do it? and if they should do it alone or with the other big global players? Indeed if the lack of preparation to the start of the crisis resulted from world leaders inability to imagine a crisis could happen, for many months now, it has been their inability to correctly judge the true situation of the world economy and the interaction of the large number of extraordinary measures taken everywhere on the planet which now condemns them to remain passive. Between now and the end of this semester, this lack of action will simply leave the place to mere reactions to social, economic and political events. All this will take place within a framework of complete disorder, reinforcing everyman-for-himself trends which have become clearer and clearer since the end of 2009.
his situation of intellectual paralysis explains why, for months now, from bankers’ meetings to G20 conferences, one only hears positive statements on the inevitable end of the emergency measures taken in 2008/2009, whilst still observing that these extraordinary measures remain in place. As always happens in these cases, the impetus for the decision will be caused by a reaction to a sudden event and not by strategic, pro-active, carefully calculated thinking. The refusal during 2009, to face up to the crucial question of the recasting of the international monetary system (1) creates a constantly shifting situation and the eventual systematic shattering of the community of interests between the big global players: disparate priorities between the Euro and Dollar zones, growing tensions between Beijing and Washington on the Yuan-Dollar exchange rate, etc… which, henceforth, encroach more and more upon the spheres of commerce and diplomacy.
On the same simple truth: the short term financing needs of the world’s banking system and Western states are now much, much larger than available savings. We are currently at the beginning of a huge wave of repayment and/or refinancing of loans made at the end of the pre-crisis period (2005/2007) that is, loans made during this period of complete financial irresponsibility, especially for schemes where profitability has collapsed due to the crisis or where the value attributed by the counterparties becomes increasingly fanciful. Simply put, it is time to pay the « bill » for all those commercial real estate investors, loans to governments, states, barely solvent cities, etc.) who believed they could have a « free lunch » in the years 2005/2007. The circumstances of a lasting economic crisis creates the worst situation possible for any repayment or refinancing.
. one the one hand the crisis has caused the collapse of average profitability of almost all economic activities (for those which have avoided bankruptcy), profitability now hovering around 2% to 5% rather than above the 10% expected for most financial transactions entered into in the 2005-2007 period.
. on the other hand, the competition to access financing has become, as is always the case in times of crisis, a real grabbing match, with households, businesses, financiers (classic), as well as Governments (and local authorities) and banks themselves. As LEAP/E2020 anticipated over two years ago, with the crisis causing the disappearance of around 30 trillion in « ghost assets », 2010 will see the start of « the ball of the damned » where, in order to repay or refinance their debts, every household, business, authority, financial institution and country will be desperately looking for resources or profits that it no longer has (due to loss of employment, falling profits, lower tax receipts, or increasing costs related to the crisis) or even trying to obtain new credit terms at a time when there are limited offers of credit for a large number seeking it.
One of the most glaring examples of this situation is, without doubt, the exclusion effect caused by US public financing huge needs: internally, businesses and households are marginalised in the face of the increasing need for credit by the American state; externally, those countries in the weakest financial condition will be excluded from accessing credit or indeed be obliged to pay huge additional financial charges, when they are unable simply considering to just ask for aid. . .
In the United States, where all possible scenarios exist in an election year, we also note a growing disconnect between pronouncements (and the statistics) and reality. If one takes the only indicator of US Treasury bond buying, one finds on the one hand a Federal government and the Fed explaining that they are selling like « hot cakes whilst the need to sell more doesn’t stop growing due to increasingly bigger deficits; and on the other, where the main buyer of US Treasury bonds over these last few years (China) has steadied its purchases and even undertaken the task of reducing its holdings ). Knowing that American households have no savings and that deficits of all kinds weigh down the major countries of the planet which are therefore unable to substitute to Chinese purchases. . .
The LEAP/E2020 team expects a rapid increase in tensions between Washington and Beijing in the coming months : it was, in effect, just what the United States had promises not to do to the Chinese, very concerned over the growing risk of their Dollar denominated assets losing value. Add to that the sale of arms to Taiwan, the meeting with the Dalai Lama, commercial spats and Iran, and we consider that the second half of 2010 will be favourable to the beginning of a settling of scores between Washington and Beijing, which will only aggravate the crisis.. .
To summarise the United States, the Eurozone, the United Kingdom, Japan and China are going to see their dreams of growth reduced to nil from the second half of 2010 onwards."
Fumble and Foolishness are the hallmarks of our leaders and regulators. As they go, they
are singing "it is not my fault".
With Love and Kindness,
THE HATMAN
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