According to LEAP/E2020, the end of
the third quarter of 2008 will be
marked by a new tipping point in the
unfolding of the global systemic
crisis. At that time indeed, the
cumulated impact of the various
sequences of the crisis (see table
below) will reach its maximum
strength and affect decisively the
very heart of the systems concerned,
on the frontline of which the United
States, epicentre of the current
crisis. In the United States, this
new tipping point will translate
into a collapse of the real economy,
final socio-economic stage of the
serial bursting of the housing and
financial bubbles [1]
and of the pursuance of the US
dollar fall. The collapse of US real
economy means the virtual freeze of
the American economic machinery:
private and public bankruptcies in
large numbers, companies and public
services closing down massively [2],...
A revealing harbinger: From March
2008 onward, the US government will
cease to publish its economic
indicators due to budget
restrictions [3].
Those who read the GEAB N°2
(02/2006), and included Alert,
certainly keep in mind our
anticipation which connected the
upcoming fall of the US dollar with
the US Fed’s decision to cease
publishing the M3 indicator. This
new decision is another clear sign
that US leaders are now anticipating
a very bleak economic outlook for
their country.
Time perspective of the seven
sequences of the impact phase of the
global systemic crisis as
anticipated since mid-2007 - Source
LEAP/E2020, GEAB N°18 (10/2007)
In this 22nd issue of the GEAB,
LEAP/E2020’s experts try in
particular to anticipate very
specifically what will come out of
the collapse of the US real economy
for the United States themselves and
for the other regions of the world.
Meanwhile our team presents five
sets of strategic and operational
recommendations helping to protect
oneself from the upcoming
deterioration of the global systemic
crisis.
On the occasion of the second
anniversary of the publication of
our famous “Global systemic crisis
Alert” which toured the world in
February 2006 [4],
LEAP/E2020 wishes to remind that we
are now resolutely stepping into an
era with no historical precedent.
Our researchers insisted on that
many times in the last two years:
any comparison with the previous
crises of our modern economy would
be fallacious. It is neither a
“remake” of the 1929 crisis nor a
repetition of the 1970s oil crises
or 1987 stock market crisis. It is
truly a global systemic crisis, that
is to say a crisis affecting the
entire planet and questioning the
very foundations of the
international system upon which the
world was organised in the last
decades.
According to LEAP/E2020, it is also
instructive to observe that, two
years after the release of this «
Alert » which at the time generated
both the interest of millions of
readers worldwide and the
condescending irony of most «
experts » and « managers » of the
economic and financial spheres,
everyone is now convinced that a
crisis is truly happening, that it
is really global, and for most
people already that it could indeed
be systemic. However, it is always a
repeated astonishment for our team
to see the degree of incapacity of
these same experts and managers in
understanding the specific nature of
the phenomenon currently unfolding.
According to them, this crisis would
only be a normal crisis but bigger.
As a matter of fact that is the way
the financial media reflect the
dominant interpretations of the
ongoing crisis. According to our
team, this approach is not only
intellectually lazy [5],
it is also morally guilty, because
it has for a main consequence to
prevent their readers (whether they
are simple citizens, private
investors or public or private
organisation managers) from
preparing for the upcoming shocks [6].
For this reason, in opposition to
all what can be read in the
mainstream media always eager to
conceal the truth and serve the
interests of those who rule them,
LEAP/E2020 wishes to remind that it
is first and foremost in the United
States that the systemic crisis is
taking an unprecedented shape (the «
Very Great US Depression » as our
team decided to call it in January
2007 [7])
because it is around this country,
and this country alone, that the
world got progressively organised
after the second World War. The
various issues of the GEAB
extensively described this
situation. In short, let’s be clear
about the fact that neither Europe
nor Asia have a negative saving
rate, a full-scale housing crisis
throwing millions of citizens out of
their homes, a free-falling
currency, abysmal public and trade
deficits, an economic recession and,
on top of all this, a number of
costly wars to finance.
Neither Asia nor Europe (or more
precisely ‘nor the Eurozone’) will
suffer the roughest, the most
sustainable and the most negative
impact of the ongoing crisis; but
the United States will, as well as
all the countries/economies strongly
linked to the US (what our experts
have decided to call “the American
risk”) [8].
A “decoupling” is indeed taking
place between the US economy and the
other large regions of the world.
But “decoupling” does not mean
“independence” and it is clear that,
as anticipated by LEAP/E2020 for
many months, Asia and Europe will be
affected by the crisis. But «
decoupling » entails that the
evolution of the US economy and of
the other large regions of the world
are no longer synchronised, that
Asia and Europe are now moving along
courses no longer determined by the
US economy.
The global systemic crisis is in
fact the beginning of an economic «
decoupling » between the US and the
rest of the world, knowing that the
non « decoupled » economies will be
dragged down the US negative spiral.
US Self-Employment in a Steep
Downturn - Source Bureau of Labor
Statistics / Merril Lynch (shaded
region represents period of US
recession)
The cases of the housing (2006) and
financial (2007) bubble-bursting are
eloquent. Indeed, the large majority
of operators (non-specialised in the
concerned sector) discovered that «
the party was over » a long time
after the trend had reversed. During
the entire reversal period (which
usually lasts between 6 to 12 months
at most), dominant stances kept
repeating them that nothing was
changing and that emerging worries
had no reason to be; and later, that
the problems would remain confined
to the sector concerned and to the
US only. All those who, in the US
and elsewhere, listened to these
arguments are bitterly regretful now
that they are stuck with
unmarketable houses (or about to be
foreclosed) or now that they see the
value of their assets crumble day
after day [9].
Concerning stock markets, our team
has anticipated since October 2007
that international stocks would
plummet by 20 to 60 percent
according to the region in the
course of the year 2008. Today, we
must re-evaluate our anticipations
as we estimate that losses will be
even greater than that. Indeed, on
the one hand, stock markets have
already lost between 10 and 20
percent since the beginning of the
year [10],
and, on the other hand, the collapse
of the real economy in the US by the
end of Summer 2008 will drag down
all stock markets. According to
LEAP/E2020, international stock
markets will probably drop by 50
percent in average compared to 2007
(including in the emerging
countries) [11].
This sort of re-evaluation is
typical of the work of anticipation
carried by LEAP/E2020. Month after
month we try to distinguish which
trends are growing and which are
relenting in order to improve the
accuracy of our evaluations. We do
not strive to “be right” [12],
nor to “sell” or “promote” anything.
We seek simply and without prejudice
to describe in advance the
consequences of the heavy trends at
play in this 21st-century world, and
to share with our readers what we
think are the proper means to
protect oneself from the most
negative effects.
In this 22nd issue of the Global
Europe Anticipation Bulletin, with
the alert we sound about a collapse
of US real economy from September
2008 onward, we are trying again to
warn those concerned that this major
event will generate many very severe
socio-political troubles in the
United States [13]
whose economy is truly on a tumbling
course [14],
a situation extremely likely to
entail very heavy consequences for
the financial and monetary markets,
and for the world’s economy. We have
not yet reached the heart of the
crisis. According to LEAP/E2020, we
will be there in the second semester
of 2008.
Endnotes:
[1]
A very instructive film was recently
nominated at the
Sundance Film Festival:
I.O.U.S.A., directed by
Patrick Creadon. As it follows
the journey of
David Walker, US Comptroller
General (and therefore responsible
for controlling federal public
spending), during a series of
conferences on the state of public
expenditures throughout the country,
this film shows the very direct
impact of the current crisis on
American citizens and the United
States. The release of this film
illustrates the fact that, in just a
few months time, this crisis left
the mere circles of experts and
boardrooms of financial institutions
to enter into the daily life of the
US citizens.
[2]
In the past few days, the complete
collapse of Municipal bonds (or «
Munis ») illustrates the fact that
the crisis is spreading to all
sectors of the US society. This
collapse will freeze all public
investment projects scheduled by
local authorities in the US. It is
one of the first big victims of the
implosion of « bonds insurers »
announced by LEAP/E2020 in the
GEAB N°19. It aloso demonstrates
the fact that large banks are now
incapable of playing their role of
financers of the country’s economic
activity. Sources:
Financial Times, 02/13/2008 &
Bloomberg, 02/14/2008
[3]
Source:
EconomicIndicators.Gov,
Economics & Statistics
Administration, US Department of
Commerce
[4]
See
GEAB N°2, 02/15/2006
[5]
The first reason that may prevent
those « experts » to conceive the «
unconceivable », is not a matter of
intelligence but a « commercial »
problem. Indeed it would compel them
to review most of their intellectual
principles (their work hypotheses)
and their business base (their «
clients » would not appreciate to
learn that they were on the wrong
track all these years).
[6]
On this subject, it is worth
noticing the very straightforward
speech made by the head of the Bank
of England, Mervyn King, who
recently warned his fellow citizens
that the current crisis would
downgrade significantly their living
standards. Unfortunately, no US
leader, including among the
Democrats, is able to produce such a
speech, knowing that their fellow
citizens will be hit even harder
than the British. Source:
The Telegraph, 02/14/2008.
[7]
See
GEAB N°11, 01/15/2007.
[8]
In this 22nd issue of the GEAB, the
LEAP/E2020 team gives a set of
recommendations helping investors to
assess themselves the « American
risk » of a country, sector or
investment.
[9]
The same goes for all those who
chose to listen to similar arguments
telling them, along the years 2006
and 2007, that it was impossible for
the EURUSD exchange rate to go above
1.30, then 1.40, and now 1.50… while
waiting 1.70 at the end of the year
2008.
[10]
Only « dream merchants » can still
imagine that stock markets could
improve by the end of the year,
while the crisis is speeding up.
[11]
It is worth reminding that in
January 2008, in just a month,
global stock markets saw USD 5,200
billion-worth go up in smoke.
Source:
China Daily News, 02/10/2008
[12]
Even if our anticipations undeniably
proved to be right in the past two
years concerning the global systemic
crisis.
[13]
See ‘Sequence 6 : 2nd quarter 2007 –
4th quarter 2009 : « Very Great
Depression » in the US, social
unrest and growing influence of the
army on public management,
GEAB N°18, 10/15/2007
[14]
Predictions about the failure of
dozens of US banks in the coming two
years illustrate the scope of
upcoming difficulties. Source:
Reuters, 02/01/2008
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