This just in from the 28th issue of Global European Anticipation Bulletin (released yesterday). This think tank has been eerily and surprisingly spot-on in all of their predictions, even anticipating a global systemic crisis in their premiere issue in spring 200 (I cut an pasted from a .pdf, so please forgive any typos or formatting errors):
Factors directly lead the United States to defaulting on their debt by summer 2009:
1. The recent upward trend of the US Dollar is a direct and temporary consequence of the collapse of stock markets
If the recent upward evolution of the US Dollar is rightly considered as « counter-intuitive » by many analysts who find it difficult to explain, it is due to the fact that it is a technical consequence of the past weeks’ financial shock. Indeed, because of the collapse of stock markets, investors and operators were compelled to sell massive amounts of USD-denominated assets, either to stop further ratings drops or to cover their losses resulting from these drops. The US Dollar being the prevailing currency on global stock markets, the process provoked a rush towards the US currency needed in all those transactions. All the more since, US banks having ceased to lend money to their foreign counterparts by fear of bank failures, these non-US financial operators had to purchase their dollars directly from the market, thus increasing the imbalance between demand and supply. The evolution therefore does not result from some “bet” on the health of the US currency, but from a compulsory step on the way to getting rid of one’s USD-denominated assets. At the turn of the year 2008/2009, when the process will be over, the US dollar will resume its downward evolution, as « very « intuitively » there will be no one left to trust the US economy, especially with a ballooning public deficit reminding of Argentina. Moreover, the immediate reflex of these operators when a financial shock such as the September 2008 one happens, is to take refuge in treasury bonds, in particular US T-Bonds. In the past few weeks this was a second reason for the Dollar to climb, as temporary as the first one as the coming weeks and the present GEAB’s further descriptions will show.
2. The US public debt is now swelling uncontrollably
What is happening in the US these days presents similarities with a brain embolism. Little by little the federal state (Federal Reserve and government) is compelled to become the insurer of the country’s entire private debt, in addition to the already phenomenal public deficit (federal and states). The
Paulson/Bernanke technique (a duet that kept making mistakes all along the last two years) in fact consists in postponing worse events by announcing that Washington takes in charge any defaulting institution: Bear Stearns started the season, then Fannie and Freddie, then AIG, and now the hundreds (or thousands in the end) of billions of “toxic” assets in dollars owned by all those banks which no one can tell how much they are worth anymore. For instance, in less than a month, between the end of August and the end of September 2008, the US administration has announced that it was taking charge of USD 1,000-billion worth of new debt (and this is a low pitch), knowing that USD 1,000-billion is also the total amount of dollars in circulation on the US territory! Paulson and Bernanke managed to double the United States in one month. According to LEAP/E2020, by summer 2009, this duet – as well as any duet that will come after the November election – will make 2 or 3 more clones of the US… debt-wise. Indeed the drastic drop in fiscal revenue, combined with ballooning debt, can only come to this result; and in the same move, to a division by the same factor of the US government’s capacity to repay the debt (the value of UD dollars and T-Bonds is about to follow a new diet). Neither the US tax-payer nor the country’s economy and even less the rest of the world will pay the bill when the public deficit is likely to reach USD 1,000-billion early in 2009.
3. The ongoing collapse of the US real economy prevents from finding an alternative solution to the country’s defaulting
If indeed the month of September 2008 was marked by the global impact of the financial crisis, it is also the month when the US economic activity collapsed. This phenomenon went rather unnoticed at global level, but is will certainly become a central topic in the coming weeks because of its consequences for the general situation in the US. When the Eurozone will face a close to zero growth (+/- 1%) in the next two years, when Asia will be hit by sudden recession in 2009 (of course with mixed rates, between -5% and +5%32) for a period of more or less two years also, and when Latin America will probably be somewhere in the middle33, the United States are already faced to the “Very Great US Depression” predicted by LEAP/E2020 18 months ago; i.e. at least 5 years of negative growth around -2% yearly average (it will probably take a whole decade for the US economy to be back to its current levels)
4. « Inflation or hyper-inflation », that is the only question
The United States, as well as the United Kingdom, will keep experiencing a significant increase in prices, fed by the rapid growth in money supply and the creation from scratch of large amounts of money. Both the Fed and the Bank of England are generating the highest hikes in their recent history in this field. If inflation will persist in Asia at an average 5 to 10% because of a support to the
economic activity and of tensions on food supply in particular, it will ebb in the Eurozone back to an average 3% while, in non-Euro EU countries (UK, Scandinavia and new members), it shall remain 5 to 10% high. Lastly in the US, given that the Fed has proved unable to handle inflation when it decided
to lower its main-rate down to 1.5% (and it will be probably be lowered even further down) and given that the US Treasury Department is preparing to print always more dollars, investing in a distressed economy and taking over more and more of the banking system’s debt45 (and soon of household debt,
in reference to the two presidential candidates’ propositions to defer foreclosures), real inflation (still far from the official statistics as explained in the previous GEABs), already close to 8/10% will climb above 10% at the beginning of 2009, speeding up at the pace of the country’s economic collapse. This phenomenon will contribute significantly to the whole process of US government failure, itself likely to trigger a process of hyper-inflation. The graphic below describes hyperinflation in Germany at the beginning of the 1920s; it shows that the process of hyperinflation is preceded by a period of inflation which all of a sudden, in just a few weeks, becomes uncontrollable. The magazine The Economist which made this graphic named it « The price of unvirtue » and « unvirtue » there was a lot in the management of the United States in the last years.
Perhaps…I’m guessing you probably thought the likelihood of a global systemic crisis bringing Wall Street to its knees and bankrupting Iceland was “B.S.” two years ago. Yes?
In any event, GEAB has set forth quite a bit of evidence to support its argument.
Do you have any to support yours? Or is “BS” the extent of your analysis?
Perhaps…I’m guessing you probably thought the likelihood of a global systemic crisis bringing Wall Street to its knees and bankrupting Iceland was “B.S.” two years ago. Yes?
In any event, GEAB has set forth quite a bit of evidence to support its argument.
Do you have any to support yours? Or is “BS” the extent of your analysis?
Perhaps…I’m guessing you probably thought the likelihood of a global systemic crisis bringing Wall Street to its knees and bankrupting Iceland was “B.S.” two years ago. Yes?
In any event, GEAB has set forth quite a bit of evidence to support its argument.
Do you have any to support yours? Or is “BS” the extent of your analysis?
Perhaps…I’m guessing you probably thought the likelihood of a global systemic crisis bringing Wall Street to its knees and bankrupting Iceland was “B.S.” two years ago. Yes?
In any event, GEAB has set forth quite a bit of evidence to support its argument.
Do you have any to support yours? Or is “BS” the extent of your analysis?
