The future of the USA - 2012-2016 (Part 2) - The unstoppable US economic spiral: Recession/depression/inflation
In fact, the United States ends 2011 in a state of weakness unmatched since the Civil War. They practice no significant leadership at international level. The confrontation between geopolitical blocs is sharpening and they find themselves confronted by almost all the world’s major players: China, Russia, Brazil (and in general almost all of South America) and now Euroland. Meanwhile, they cannot control unemployment where the true rate stagnates at around 20% against the backdrop of an unabated and unprecedented reduction in the labour force (which has now fallen to its 2001 level).
Real estate, the foundation of US household wealth along with the stock market, continues to see prices drop year after year despite desperate attempts by the Fed (3) to facilitate lending to the economy through its zero interest rate policy. The stock market has resumed its downward path artificially interrupted by two Quantitative Easings in 2009 and 2010. US banks, whose balance sheets are much more heavily loaded with financial derivative products than their European counterparts (4), are dangerously approaching a new series of bankruptcies of which MF Global is a but a precursor, indicating the absence of procedural controls or alarms three years after the collapse of Wall Street in 2008 (5).
Poverty is gradually increasing in the country every day, where one in six Americans now depend on food stamps (6) and one in five children has experienced periods of living on the streets (7). Public services (education, social, police, highways...) have been significantly reduced across the country to avoid city, county, or state bankruptcies. The success with which the revolt of the middle class and the young (TP and OWS) has met is explained by these objective developments. And the coming years will see these trends get worse.
The weakness of the 2011 US economy and society is, paradoxically, the result of the “rescue” attempts carried out in 2009/2010 (stimulus plans, QE ...) and the worsening of a pre-2008 “normal” situation. 2012 will mark the first year of deterioration from an already badly impaired situation (8).
SMEs, households, local authorities (9), public services,... have no more “padding” to soften the blow of the recession into which the country has fallen again (10). We anticipated that 2012 would see a 30% drop in the Dollar against major world currencies. In this economy, which imports the bulk of its consumer goods, this will result in a corresponding decrease in US household purchasing power against a backdrop of double-digit inflation.
The TP and OWS have, therefore, a bright future ahead of them since the wrath of 2011 will become the rage in 2012/2013. And according to LEAP/E2020, nothing is less certain than the ability of a general in uniform to master such a rage. For the great financial issue in 2012 (which is why the attacks on Euroland have multiplied and intensified since the end of summer 2011) is simply the financing of the huge “black hole” of US deficits.
In the next GEAB issue, we will develop a clearer-cut analysis on why 2012 marks a catastrophic turning point for the US Treasury Bond market, but what we are talking about here was already officially recorded by the OECD: in 2012, there will no longer be enough money available to finance Western deficits (11). It's an anticipation that we made in 2009 by, for the first time quantifying what we called the disappearance of “ghost-assets” that this crisis is turning into smoke, shock after shock. The OECD confirms this prognosis and this explains the increasingly open warfare conducted by the UK and the US to try and appropriate the remaining financial resources, particularly at the expense of Euroland, capable of being a greater attraction on its own (12).
Source: OCDE, Société Générale, 11/2011
The unstoppable US spiral of recession/depression/inflation is, therefore, the harbinger of turbulences without modern equivalent for the United States, both in their scale and speed. Our team considers the players of the “Beltway” are unable to imagine this shock and its consequences.
Thus, to take one telling example: when the Pentagon works with difficulty on a possible 5% reduction of its budget over the next five years, it’s totally mistaken in terms of the magnitude in budget cuts. Between the institutional deadlock and the 2012 economic and financial shocks especially, it should be working on cutting its budget by 50%. "Impossible!" say the officers and military experts. In fact they mean "Unthinkable!" This isn’t quite the same thing. They should ask the bosses of Lehman Brothers, AIG and the big Wall Street players if, in 2007, they thought a widespread collapse of their financial markets "possible" a year later? They should ask the Soviet generals of 1987 whether they thought it "possible" that the USSR would have disappeared four years later and that their budget would have fallen to almost zero? In an historic crisis, the "impossible" is in fact generally limited to the "unthinkable"... until the moment when suddenly reality imposes its choice which, in only a few cases, is what the players involved think.
Besides US banks will face a new massacre in 2012. As mentioned in the GEAB N°58, between 10% and 20% of them will go bankrupt (13) following the example of their European and Japanese counterparts. It’s the derivative products swilling around their balance sheets that will lead them there, the direct result of the European debt crisis and the direct hit of the shock that will affect the City first of all, the last bastion of Wall Street.
Hyperinflation is a very real possibility for the United States (14) in 2013, against the backdrop of federal (and local) governments lacking the means of action and a banking system suffocated by the sudden rise of all the unpaid domestic (household debt, local authorities...) and external (sovereign debt) dues.
Excerpt GEAB N°60 (December 16, 2011)
(1) In his marvellous poem « If
», Rudyard Kipling wrote “… If you can bear to hear the truth you've spoken/ Twisted by knaves to make a trap for fools/ Or, being lied about/ Don't deal in lies/ Yours is the Earth and everything that's in it”. And this advice applies to communities as well as individuals because the reading of the Anglo-Saxon press about the Euro and Euroland irresistibly makes our team think of this passage from the poem. However, with the marginalization of the United Kingdom within the EU and faster Euroland integration (as per our anticipations), we note the crossing of a psychological barrier in Euroland: it’s no longer the time to avoid offending the sensibilities of our Anglo-Saxon “allies”, but simply to protect ourselves from the attacks of our Anglo-Saxon opponents. Unlike the media and “mainstream
” experts of Wall Street and the City, Euroland isn’t wasting time “to twist the words to make a trap for fools”, it satisfies itself in taking reality into account, to move forward “grinning and bearing it” and cut, one by one, the ties that bind it to the British and US financial centres (and the political ones later). Our team cannot resist the temptation to provide a further illustration of the daily “spinning” of information of which most of the British and US media have made a specialty. Thus, in the section of our heading “twisted by knaves to make a trap for fools”, MarketWatch
published an article on 14/12/2011 entitled “Fund managers fear a Eurozone break-up” Yet what did we discover in the article? That their main concern (75% of them) was a further US downgrade (48% think it will happen in 2012) and only 44% of them thought there was a risk that one day a country would leave the Eurozone, without mentioning a timeframe. An honest title should, therefore, have been “Fund managers fear a further US downgrade”. But as they say in French: “A la guerre comme la guerre (make do with what you’ve got)!”.
(2) Whereas in the same time, the US population has increased by 30 million, a 10% rise. Source: Washington Post
(3) Our team thinks 2013/2014 will provide, via the Congress and due to massive public support, an unprecedented opportunity to demand a dismantling of the Fed. The anti-federal beliefs of the Tea Parties and those anti-Wall Street of the OWS will find a compelling focal point here.
(4) Source: New York Times
(5) In this connection it is interesting to note that the rating agencies, led by Moody's, saw nothing coming once again since, until the end of summer 2011, MF Global had a positive rating from these agencies... even while the company was already tapping its clients’ accounts in an attempt to survive. May those who believe that their investments are better protected on Wall Street or in the City reflect on this “detail”.
(6) Sources: MSNBC
, 11/2011; RT
(7) These are the numbers that henceforth rank the country fully in the “Third World” category in social matters. Source: Beforeitsnews
(8) Gregor McDonald says the country can no longer generate growth. Source: SeekingAlpha
(9) Source: Washington Post
(10) In fact, it has never left it since 2008, except technically due to macro-economic measures. But no one eats macroeconomics... except economists.
(11) Source: Financial Times
(12) Here, if some believe that the Fed intervened with other major central banks a month ago to come to the “rescue” of Euroland, they know little about the motivations of US interventionism: the United States intervene outside their borders only if they feel their direct interests are at stake. Their late arrival in two world wars illustrates this very well. In this case, as we have analyzed and as the MF Global case shows, it’s quite simply to save their own banks and financial institutions that they intervened. They fluctuate on empty, with their balance sheets swollen with derivatives of which no one knows the exact content; and only the Fed in these last three years has prevented the widespread bankruptcy of Wall Street. As anticipated in several GEABs, the Fed is well aware that Euroland is the detonator “par excellence” that will trigger Wall Street and the City’s explosion, then it douses the wick as long as it can.
(13) Without even mentioning the growing number of court cases in which the are enmeshed. Source: Le Monde
(14) All the more since, according to LEAP/E2020, at the end of 2012 Euroland will put in place a proactive policy promoting the use of Euros inall exchanges, including in the field of energy. The decisions made by Euroland banks to stop lending money in USD (knowing the need for that fell from 1,300 billion USD to 800 billion, and probably down to less than 500 billion in 2012), as a result of the asphyxia attempt perpetrated against them by their Wall Street and City partners, will automatically result in two opposite phenomena at the end of 2012: a sharp fall in the global demand for USDs; and, on the opposite, a strengthened lending activity in Euros. Given that China, as well as its BRICS partners, continues to increase the amount of its exchanges in Yuan (or in other BRICS currencies), 2012 will therefore be characterized by the emergence of two big monetary zones next to the Dollar zone. This collapse in the global need for USDs in trade transactions will in turn generate a massive return of USDs to the United States, thus contributing to the episode of hyper-inflation that we anticpate in 2013. Source: New York Times