As anticipated by LEAP/E2020 last February, in the absence of major reappraisal of the international monetary order, the world is now entering the phase of geopolitical dislocation of the global systemic crisis. In 2010, as protectionism and the economic and social depression will gain momentum, a large number of States will be compelled to choose between three brutal options: inflation, high taxation or defaulting on their debt. A growing number of countries (USA, United Kingdom, Euroland (1), Japan, China (2),…) have used all their budgetary and monetary cartridges in the 2008/2009 financial crisis and are now left with no other alternative. Nevertheless, out of ideological reflex or in an attempt to avoid by any means having to make such painful choices, they will try to launch new stimulus plans (under different names) even though it is now clear that the huge public effort made in the past months to boost the economy is having no impact on the private sector. Indeed the consumer-as-we-knew-him in the past decades is dead, with no hope of resurrection (3). Knowing that nearly 30 percent of Western countries’ economies are now made of « economic zombies » (financial institutions, companies and even states, whose signs of life are only due to central banks’ liquidity injections), it is possible to confirm the inevitability of the “impossible recovery” (4). The international and social (within each country) « everyman for himself » rule is beginning to prevail, as well as a general impoverishment of the ex-Western world, United States in the first place. In fact the West is being scuttled by leaders unable to face the reality of a post-crisis world, who keep resorting to methods from yesterday’s world despite their proved inefficiency.
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But trends regarding consumption and investment are extremely negative. The consumer is incited to save money, pay back his debt and, more generally, reject (willingly or not) the Western model of consumption of the past thirty years (5) due to which growth, in the US and UK in particular, became nearly entirely dependent on him (6). Meanwhile, companies, due to their lack of visibility (to be positive) or to their negative forecasts, are cutting on investment, a situation emphasized by banking credit restrictions (7). Public investment also is reaching limits: it will be impossible to significantly extend or renew previous stimulus plans without excessively increasing public deficits and then being faced, at the end of 2010, to at least two of the three brutal optionsv(8). The states are indeed exposed to increasing pressure (general public, supervisory bodies, private investors) (9) to balance their bad, see dangerous, budgets. In other words, public investment in 2010/2011 is doomed to shrink away.
Foreign demand is completely soaked: everyone wants to export in order to find abroad the greedy consumer or the investing company that is no longer to be found at home. The great myth being that Asia, and China in particular, will provide for this « new Western-style consumer ». Besides the fact that many will be called but few will be chosen among non-Chinese or non-Asian to enjoy the region’s market, it would be an underestimation of the systemic nature of the global crisis to imagine that this new consumer will be as greedy as the now moribund Western consumer. The luxury industry and its current woes in Asia clearly illustrate this situation.
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Central banks continue to supply financial markets with liquidity, hoping that at some point their huge quantitative effort will result in some qualitative surge in the real economy. In the US and UK particularly, as they continue to pretend that the crisis does not reflect a general problem of insolvency (of banks, consumers, public organizations and companies), they “wait for Godot” and create the conditions for soaring inflation, and collapsing currencies and public money.
States unflinchingly continue to bear the consequences of banks’ mistakes, nevertheless still listening to bankers’ advice. Thus they built up a debt of first unreasonable and then intolerable proportion, and now they are on the verge of drastically cutting public spending (10° and of significantly increasing taxes in an attempt to avoid bankruptcy (11).
« Economic zombies» (12), private and public ones, now account for a large part of Western and Chinese economies: objectively defaulting states (like the UK or US) which no one dares technically declare as such; bankrupt companies still allowed to run by fear of increasing unemployment (13); insolvent banks (14) whose accounting rules are modified, artificially swollen to hide the worthlessness of their assets, to postpone their inevitable implosion (15).
Financial markets are going up thanks to liquidity graciously offered by central banks (16) eager to give back to the consumer/grant-holder a felling of wealth in the hope that he will start being himself again and consume, when in fact all categories of assets (17), such as gold for instance, are also going up (even faster in most cases), clearly indicating that inflation has in fact returned.
Unemployed people are piling up in dozens of millions in and out of official figures, suggesting that 2010 will be a tough year socially-speaking, placed under the sign of protectionism to save jobs (by means of tariff, environmental or sanitary barriers, or by means of simple competitive devaluations), while governments wonder how much longer they can take the global cost of so much unemployment when no recovery is in sight (18).
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LEAP/E2020 wrote in February and March 2009 that, if the international monetary system was not completely reconsidered before summer 2009, the world would inevitably move towards a situation of global geopolitical dislocation, some sort of a worldwide “very great depression”, centered on the collapse of yesterday’s world’s pillar, the US. That’s where we are now (19). Even tampered figures (20) can no longer hide the level of deterioration of the global economic and social situation nor the descent to hell of the US economy and society. This reality is clearly appearing and will be obvious to everyone by the beginning of the second quarter of 2010
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http://leap2020.eu/GEAB-N-39-is-available!-Global-systemic-crisis-States-faced-with-three-brutal-options-in-2010-inflation,-high-taxation_a3995.html
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