One year ago, LEAP/E2020 anticipated that the year 2007 would mark the US entry into what our team then called “the Very Great US Depression”. At that time, the dominent spirit was overwhelmingly euphoric. The word « subprime » was still unknown among the general public and experts estimated that the US housing crisis would bear no consequences for the rest of the US economy (and they simply refused to very idea that it could have the least global impact).

In the course of 2007, facts however proved that a global systemic crisis was indeed throwing down all the principles the global economy was based upon since 1945; and that, along with the GEAB’s analyses in September 2007 (GEAB N°17), the seven sequences of the impact phase of the global systemic crisis would simultaneously reach climax in the course of the year 2008.

One aspect, and a catalyst, of this global systemic crisis is the United States’ stepping into an unprecedented (1) socio-economic crisis in 2007, hitting hard on households (2) as a result of the housing bubble burst and of their increasing insolvency, soon followed by financial operators’ insolvency, due to the pure and simple evaporation of USD hundreds of billion-worth in assets.

In 2008, in addition to these two types of US players, companies will be hit as are caught in the crossfire between credit crunch and the collapse of housedold consumption, as well as public organisations whose fiscal revenues crumble. From now to this summer in particular, the financial crisis triggered by the US subprime mortgage loans will turn into a much wider-ranging crisis involving the implosion of the Credit Default Swaps (CDS) market. This will represent a now tipping point in the impact phase of the global systemic crisis (see detailed analyses in the rest of this announcement and in the GEAB N°21 - upon subscription.

Asia, Europe and emerging countries in 2008 – Direct but mitigated impact of the Very Great US Depression: Recession, stagflation and Western financial institutions taking control

Simultaneously, the diving of the US into the Very Great Depression will bear a full direct impact on global economy altogether:

. The Eurozone will step into a perdio of stagflation while the rest of the EU (UK in the first place) will be sucked up in a recessionary process. Denmark (and probably soon after Sweden) are preparing to join the Eurozone, as Prime Minister Fog Rasmussen (3) clearly expressed who recently resurrected the idea of holding a referendum on the Euro. These two countries are aware that the Eurozone will not cause any difficulty to their joining (under the Treaty, Sweden should in fact already be part of the Eurozone because it is required to adopt the Euro at a certain time) (4).

This sudden Scandinavian craving for the single currency is not the result of any recent conversion to the merits of European integration, but their growing awareness of the magnitude of the upcoming monetary, financial and economic turmoil, which could be lethal for small-sized economies not protected by a complete integration to larger entities.

On the East of the EU, many countries are striving to reduce the time needed to join Euroland. However the differences in economic situations are still too important for these countries to be fully sheltered when the tempest hits full shot in 2008 (even Denmark and Sweden are lagging behind events).

In fact the Eurozone will not present exciting prospects in the year to come, with a growth rate around 1 percent. But compared to the rest of the world, it will be by far the area least affected by the impact of the crisis. The risk of internal divergence among the economies of the Eurozone are obviously real (and our team often detailed their anticipations on this subject in recent issues of the GEAB), yet the overriding feeling today in the Eurozone is about preserving a currency that seems to protect quite efficiently the Europeans using it from external turmoil.

This situation will require from the ECB and for the Eurogroup to find most efficient means of cooperation, taking into account the expectations of both the public opinion and the various economies. In the last few months, anti-ECB political speeches (Nicolas Sarkozy’s, in particular) became dormant. And, considering that Germany is also about to be affected by the EUR/USD rate (soon climbing above 1.50 and heading towards 1.70, before the end of 2008), all the players of the European monetary and economic game will be ready to move on. According to LEAP/E2020, this will take the form of a 2 to 3 percent increase of maximum acceptable inflation rate by the ECB.

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Notes :

(1) Or rather ‘with a precedent’ which most experts and specialised media often refer to, and that is the 1929 crisis and the Great Depression that followed in the 1930s. On this subject, the LEAP/E2020 team demonstrated in the previous issues of the GEAB that the present crisis if in fact much more serious that the 1929 crisis.

(2) If anyone still doubts that there is a recession in the US, we suggest he/she complies to the following simple exercise: enter the expression « december sales down» in Google and see the impressive list of companies from all sectors (retail sales, cars, electronic, furnitures,…) whose sales collapsed in December 2007, a month usually very profitable due to the holiday season.

(3) Source: Financial Times, 11/22/2007

(4) Source: European Commission, Economic and financial affairs

Mercredi 16 Janvier 2008

In the same category:

Global systemic crisis – USA 2012/2016: An insolvent and ungovernable country - 16/12/2011

Global systemic crisis: Second half of 2011 - European context and US catalyst - Explosion of the Western public debt bubble - 01/12/2011

Global systemic crisis: 30,000 billion US dollars in ghost assets will disappear by early 2013 / The crisis enters a phase of widespread discounting of Western public debt - 16/11/2011

Global systemic crisis – First half of 2012: Decimation of the Western banks - 16/10/2011

Global systemic crisis - Fourth quarter 2011: Implosive fusion of global financial assets - 16/09/2011

When Athens aims to hide London and Washington - 01/09/2011

Global Systemic Crisis - The Decade 2010 – 2020: Towards a knockout victory by gold over the Dollar - 01/09/2011

Systemic global crisis - 2011: The ruthless year, at the crossroads of three roads of global chaos - 11/08/2011

The Fed faces a serious dilemma from summer 2011: an absolute necessity for QE3, an absolute impossibility of QE3 - 03/08/2011

Global systemic crisis: Second half of 2011 - European context and US catalyst - Explosion of the Western public debt bubble (full version) - 27/07/2011

GEAB N°61 - Contents

- Published on January 16, 2012 -

Global systemic crisis - 2012: The year of the world’s great geopolitical swing
This GEAB issue makes it six years that the LEAP/ E2020 team have shared their anticipations with their subscribers and readers of their public briefing on the development of the global systemic crisis each month. And, for the first time, in the January issue which presents a summary of our anticipations for the year to come, our team anticipates a year which will not result solely in a worsening of the world crisis but which will also be characterized by the emergence of the first constructive elements of the “world after the crisis”… (page 2)
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USA 2012: on the way towards the tragedy of QE3
Today, US financial policy is confronted by the sovereign debt crisis of which it will be the ultimate victim in 2012. As LEAP/E2020 anticipated, the 2011 European debt detonator has truly ignited the 2012 American sovereign debt bomb, even if the media coverage desperately tries to make us believe the opposite. The massive sale of US Treasury Bills by the planet’s major central banks in the second half-year 2011 perfectly illustrates this situation incidentally… (page 7)
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ANTICIPATIONS 2012 - ‘20-UP AND 15-DOWN’, THIRTY FIVE KEY TRENDS FOR 2012
Up or Down? The United States' political paralysis; The City and Wall Street ; The rise in interest rates; The forfeiting of value to Wall Street and the City; The value of Chinese reserves; The Pound Sterling (and Gilts); Euroland as new European sovereign; The USA-China “little cold war”; Italy; The importance of the US Dollar in world trade transactions; Rating agencies; The “great European public borrowing” (GEPB); MerkHollMont; Ron Paul; The number, size and influence of Western banks; The continuation of gold’s return in the international monetary system; Recessflation; Sarkozy, Cameron, Netanyahu and Medvedev; The BRICS maturing as a pro-active world player; Turkey’s exit from the Western camp; The Tobin Eurotax; Secular and pro-Western forces in the Muslim world; Growth; The usefulness of the G20; Lawsuits against those managing banks and hedge funds; The splitting of the world monetary system into three zones: Dollar, Euro, Yuan; The widespread downgrade of Western public debt; Peoples' anger; The Euro crisis; The EU as the principal incarnation of Europe; QE3 as the ultimate weapon for saving the US economy; The US’ capacity for military intervention; The West as a community of relevance and values; Scottish independence; Le détroit d'Ormuz et un nouveau contexte de crise au Moyen-Orient ; L'indépendance de l'Ecosse; The Straits of Hormuz and a new context of the Middle East crisis (page 19) (page 19)
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The GlobalEurometre - Results & Analyses
We are seeing a strengthening in the majority considering that common European solutions to the crisis are more effective than national ones (80% in January versus 77% in December)… (page 33)
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