Excerpt GEAB N°76
15 June 2013
THE IMPACTS OF THE SECOND SHOCK
- …collapse of financial markets especially in the US and Japan. Banks can no longer be saved by States and bail-ins are put in place;
- …spreading to the real economy: the financial impasse causes/reveals a major world recession and the reduction of international trade;
- …the economic deterioration causes unemployment to explode, in the United States the
- dollar’s decline lowers the standard of living…
- the governments of the most affected countries are under fire for their handling of the crisis, forced resignations and early elections are expected, if not coups;
- international management of the crisis: together Euroland and the BRICS impose a new international monetary system and lay down the bases of a new global governance;
- the least affected regions have exited the crisis definitively;
- it will take the United States, the United Kingdom and Japan five years to purge themselves of the crisis with, ultimately,
- a greatly reduced standard of living and a considerable
- loss of global influence (resulting from their refusal to participate in the re-casting of global governance on new bases). Being at the centre of the problem, the United States will clearly be hit head-on as well as their direct area of influence (mainly the United Kingdom and Japan).
In Euroland, which has already largely began the necessary process of change,
- the cleanup of its economy and
- the strengthening of its governance (the most recent example being Hollande and Merkel’s willingness to put a Eurozone government in place), and which has already suffered for this reason, will be less affected by this second crisis than other countries/regions; but the political crisis in the Eurozone is, on the other hand, weakening this region on a social level…”
2013, the first steps in a chaotic … Public announcement GEAB N°70 Dec. 16, 2012
Profiling Euroland in the world after the crisis
The media war against the Euro was useful inasmuch as it forced the Eurozone to implement the reforms necessary to overcome the crisis…And gradually the structures have come into place that strengthen the Eurozone. The contrast with US inaction is striking.
This should not obscure the many problems in Greece and Spain, for example; no one said it would be painless to recover from the bursting of the housing bubble and a historic global systemic crisis; as a matter of fact these countries could benefit more from technical assistance and expertise from other European countries. But overall, the situation is improving, the new Greek debt restructuring has been successful, deficits are reduced in Greece and Spain, Italy was put back on track by Monti…
But whether it is through
- the banking union which will begin functioning in early 2014, through
- increased political integration or through
- the European Stability Mechanism, the independence of Euroland states is affirmed…Visible signs of the decoupling and independence of Euroland, despite criticism, are the solutions to the crisis, ones at odds with those practiced in the US. It is indeed
- “austerity” that prevails in Europe, and avoids the faltering evident in the US budget. Euroland’s resistance also involves
- the pooling of public debt. With the launch of “project bonds” to finance EU infrastructure projects, increased pooling is underway, and the way is open for Eurobonds…
The emerging countries have begun to diversify their economies, especially in turning them in the direction of
- domestic consumption, and can versus overcome the crisis quicker. That said, their strategy of domestic demand development will suffer considerably from the shock; now
- these countries’ social fabric is still fragile.
However, we mustn’t forget that
- theWestern hyper consumption which we have seen over these last 20 years is finished since
- the artificially high standard of living in this part of the world will be reduced. The move will be particularly clear-cut in the United States when
- the dollar, losing its special central role, will drop to reflect the true worth of the US economy, which is in the order of 20% lower of what current numbers tell us, particularly due to the huge quantity of phantom assets. Given
- the inevitability of a fall in the Western standard of living, it begs the question which fundamentals of society should be preserved to avoid a pure and simple collapse of our models (or what remains of them). People can tolerate a lower level of purchasing power if, besides, it enjoys
- quality public services (education, social security, infrastructure in particular)
- requiring effective and fair tax payments (the current trend of fiscal tightening is, therefore, a move in the right direction). In Europe, these are the characteristics to preserve and enhance…
So as not to be isolated the United States is trying to keep Europe close to its chest with the negotiation of the transatlantic free trade agreement…
China, which has been one of the principal countries keeping the United States on a drip by buying its Treasury bonds, having sufficient time to progress its transfer out of the dollar and be less dependent on exports, has considerably reduced its exposure to the world’s number one problem, the dollar, by
- multiplying swap agreements, insidiously and gradually undermining the dollar’s base. On a commercial level, so to speak, it has actually laid the groundwork for
- a basket of local currencies abandoning the dollar pillar. The last five years have, therefore, enabled it to be better prepared, including making itself indispensable in Asia and keeping
- a comfortable buffer of currency reserves, even if the emerging countries’ bubble hasn’t spared it.
The share of world payments in Yuan has tripled between January 2012 and April 2013. At this rate the Yuan will dethrone the Yen before the end of 2014.
Euroland is slowly beginning to get closer to the BRICS… This alliance with the BRICS, allowing the joining of these two regions’ complementary strengths, will guarantee that the two blocs have a better capacity to absorb the coming shocks.