Almost a year ago LEAP/E2020 identified the second half of 2011 as a new critical point in time in the development of the global systemic crisis. Just like our February 2008 anticipation highlighted a major shock affecting the US economy in September 2008, our team confirms in this GEAB issue that all the conditions have now been met for the second half of 2011 to be the stage for the explosive fusion of two fundamental trends underlying the global systemic crisis, namely world geopolitical dislocation on the one hand and the global economic and financial crisis on the other.
In fact, for several months the world has experienced an almost unbroken succession of geopolitical, economic and financial shocks which, according to LEAP/E2020, constitute the warning signs of a major traumatic event that we analyze in this issue.
At the same time the international system has now passed the stage of structural weakening to enter a phase of complete decay where old alliances are breaking down, whilst new communities of interest are emerging very quickly.
Finally, any hope for significant and lasting global economic recovery has now evaporated (1) whilst the Western pillar’s indebtedness, especially the US, has reached a critical level unparalleled in modern history (2).
In fact, for several months the world has experienced an almost unbroken succession of geopolitical, economic and financial shocks which, according to LEAP/E2020, constitute the warning signs of a major traumatic event that we analyze in this issue.
At the same time the international system has now passed the stage of structural weakening to enter a phase of complete decay where old alliances are breaking down, whilst new communities of interest are emerging very quickly.
Finally, any hope for significant and lasting global economic recovery has now evaporated (1) whilst the Western pillar’s indebtedness, especially the US, has reached a critical level unparalleled in modern history (2).
Comparative progression of the United States and China’s share of world GNP (2001-2016) (in purchasing power parity) - Source: IMF / MarketWatch, 04/2011
The catalyst for this explosive fusion will obviously be the international monetary system, or rather international monetary chaos which has been further exacerbated since the disaster that struck Japan last March and in front of the inability of the United States to face the requirement for an immediate and significant reduction of its huge deficits.
The end of QE2, the symbol of and factor in the explosive fusion now underway, represents the end of an era, that where the "US Dollar was the currency of the United States and the rest of the world’s problem": from July 2011, the US Dollar will openly become the main threat weighing on the rest of the world and the United States’ crucial problem (3).
Summer 2011 will confirm that the US Federal Reserve has lost its bet: the U.S. economy has, in fact, never left the "Very Great Depression" (4) which it entered in 2008 despite the trillions of dollars injected (5), as the vast majority of Americans are perfectly aware of (6). Unable to launch a QE3 (even unofficially through its Primary Dealers as it used to do until the world became too closely interested in the US Treasury Bond market), the Fed will helplessly watch interest rates rise, US government deficit costs explode, the world dive into an intensified economic recession, stock exchange collapse and the US dollar show erratic behavior, making short-term saw-tooth movements, depending on the influence of these events, before suddenly losing 30% of its value as we anticipated in the last issue (7).
At the same time Euroland, the BRICS and commodity producers will rapidly strengthen their cooperation while launching a final attempt to salvage the international institutions created by Bretton Woods and the world dominated by the US /UK duo. This will be the last since it is unrealistic to imagineBarack Obama , who has shown no major international stature so far, proving himself to be a statesman and thus take major political risks in a presidential election year.
The end of QE2, the symbol of and factor in the explosive fusion now underway, represents the end of an era, that where the "US Dollar was the currency of the United States and the rest of the world’s problem": from July 2011, the US Dollar will openly become the main threat weighing on the rest of the world and the United States’ crucial problem (3).
Summer 2011 will confirm that the US Federal Reserve has lost its bet: the U.S. economy has, in fact, never left the "Very Great Depression" (4) which it entered in 2008 despite the trillions of dollars injected (5), as the vast majority of Americans are perfectly aware of (6). Unable to launch a QE3 (even unofficially through its Primary Dealers as it used to do until the world became too closely interested in the US Treasury Bond market), the Fed will helplessly watch interest rates rise, US government deficit costs explode, the world dive into an intensified economic recession, stock exchange collapse and the US dollar show erratic behavior, making short-term saw-tooth movements, depending on the influence of these events, before suddenly losing 30% of its value as we anticipated in the last issue (7).
At the same time Euroland, the BRICS and commodity producers will rapidly strengthen their cooperation while launching a final attempt to salvage the international institutions created by Bretton Woods and the world dominated by the US /UK duo. This will be the last since it is unrealistic to imagine
Progression of the Shiller index of standard existing house prices in the USA (1890-2011) (in red: projection) - Source: R.J. Schiller / Steve Barry / Big Picture / New York Times, 01/2011
Barriers, security, export embargos, diversification of reserves, frenzy over commodities, widespread rising inflation ... the world is preparing for a new economic, social and geopolitical shock
China has just announced that it is halting all diesel exports to try and stop a rise in fuel prices that recently caused a series of strikes by road hauliers (8). May the Asian countries that depended on these Chinese exports manage, just like Japan has done in the aftermath of last March’s disaster!
Russia has also stopped exporting certain oil products to limit domestic shortages and price increases (9), an export halt added to that on cereals imposed several months ago.
Across the Arab world, instability continues to prevail against the backdrop of the rising cost of basic food commodities (10), whilst questions over the extent of Saudi Arabia’s oil reserves and production capacity have resurfaced (11).
In the United States, any weather event out of the ordinary immediately causes the risk of shortages due to the lack of a security "buffer" in the US distribution system, except to call upon strategic stockpiles (12). Meanwhile, the population reduces its spending on food in order to fill the tanks of their cars at more than 4 dollars a gallon (13).
In Europe, the decline in social security and extreme austerity measures implemented in the United Kingdom, Greece, Portugal, Spain and Ireland, ... will cause an explosion in the number of poor.
Russia has also stopped exporting certain oil products to limit domestic shortages and price increases (9), an export halt added to that on cereals imposed several months ago.
Across the Arab world, instability continues to prevail against the backdrop of the rising cost of basic food commodities (10), whilst questions over the extent of Saudi Arabia’s oil reserves and production capacity have resurfaced (11).
In the United States, any weather event out of the ordinary immediately causes the risk of shortages due to the lack of a security "buffer" in the US distribution system, except to call upon strategic stockpiles (12). Meanwhile, the population reduces its spending on food in order to fill the tanks of their cars at more than 4 dollars a gallon (13).
In Europe, the decline in social security and extreme austerity measures implemented in the United Kingdom, Greece, Portugal, Spain and Ireland, ... will cause an explosion in the number of poor.
Percentage of the male population employed within the seven major Western economies (1970-2009) - Source: The Economist / OECD, 04/2011
The EU has more or less surreptitiously just reinforced its customs arsenal to withstand Asian imports in particular. First, it has reviewed its whole paraphernalia of preferential tariffs to eliminate all emerging nations, China, India and Brazil first of all. Second, at the end of 2010, it discreetly passed legislation to facilitate the implementation of anti-dumping and safeguard measures, because now a simple majority is sufficient to pass such a proposal with the Commission, whilst previously a qualified majority was needed, often difficult to marshal (14).
Meanwhile, central banks continue to buy gold (15), announcing more or less clearly that they are diversifying their reserves (16) whilst they are taking increasingly inconsistent and dangerous steps, increasing interest rates to counter inflation in a context of weak economies or in recession to counter the influx of liquidity generated by the US Federal Reserve’s policies (17). To paraphrase the title of an article by Andy Xie, published in Caixin of 04/22/2011, "Rising inflation makes central bankers mad" (18).
And the US side is completely in dreamland: whilst the country has reached unsustainable levels of debt, the leaders in Washington have made this topic an election issue, as illustrated by the question of the Federal debt ceiling which will be reached on May 16 (19). Comparisons abound in the US and international financial press with the Clinton years where a similar problem had arisen without major consequences. Obviously a sizeable part of the US elite and financiers haven’t yet taken on board the fact that, unlike the 90s, the United States today is seen as the “sick man of the world” (20), in which any sign of weakness or serious inconsistency can trigger uncontrolled panic.
Crazy central bankers, world leaders without a roadmap, economies at risk, inflation rising, currencies in trouble, frenzied commodities, uncontrolled Western debt, unemployment at its highest, stressed societies ... there’s no doubt, the explosive fusion of all these events will really be the memorable event of the second half of 2011!
Meanwhile, central banks continue to buy gold (15), announcing more or less clearly that they are diversifying their reserves (16) whilst they are taking increasingly inconsistent and dangerous steps, increasing interest rates to counter inflation in a context of weak economies or in recession to counter the influx of liquidity generated by the US Federal Reserve’s policies (17). To paraphrase the title of an article by Andy Xie, published in Caixin of 04/22/2011, "Rising inflation makes central bankers mad" (18).
And the US side is completely in dreamland: whilst the country has reached unsustainable levels of debt, the leaders in Washington have made this topic an election issue, as illustrated by the question of the Federal debt ceiling which will be reached on May 16 (19). Comparisons abound in the US and international financial press with the Clinton years where a similar problem had arisen without major consequences. Obviously a sizeable part of the US elite and financiers haven’t yet taken on board the fact that, unlike the 90s, the United States today is seen as the “sick man of the world” (20), in which any sign of weakness or serious inconsistency can trigger uncontrolled panic.
Crazy central bankers, world leaders without a roadmap, economies at risk, inflation rising, currencies in trouble, frenzied commodities, uncontrolled Western debt, unemployment at its highest, stressed societies ... there’s no doubt, the explosive fusion of all these events will really be the memorable event of the second half of 2011!
Chinese pay rises (2011/2010) - Source: Standard Chartered Bank / Getty, 05
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