Yesterday’s recipes have no effect on the global systemic crisis

The only chance for the states to escape those three brutal options would be that either consumption resumes or the private sector starts investing again. But in the absence of one or the other positive dynamic, States will have no other alternative in 2010 than raise taxes to match their huge public deficits, let inflation soar to diminish the relative weight of their debt, or else file for bankruptcy. Some of these countries (the US, UK, Ireland, Argentina, Latvia, or even Spain, Turkey, Dubai or Japan) could be confronted to two, see all three, options at the same time.

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 options (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.
 

Comparative evolution of UK GDP during each recession since the 1930s crisis (in months, from official start of each recession) - Source – National Institute of Economic Review, 10/2009
 

So what’s left?


« Zombie-economy » now accounts for a considerable part of the global economy

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).
 

Evolution of unemployment rate in the Euroland and in the US (1991 – 2009) - Sources: Eurostat, Bureau of Labour statistics, Morgan Stanley

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. In this GEAB N°39, like every month, our team tries to anticipate the main trends so that everyone, personally or professionally, can get ready for a difficult year in 2010, a year when yesterday’s recipes will prove their inefficiency in curbing the global systemic crisis.
 

LEAP/E2020
Laboratoire Européen d’Anticipation Politique
Public announcement Geab n° 39 (16/11/2009)