As reveals the study conducted by LEAP/E2020, namely via calculations in world’s five main currencies (US dollar, Euro, British pound, Yen and Yuan), the US economy actually went into recession during the first quarter of 2007.

It is indeed during this period that the value of the US GDP started to decrease when calculated in three of the four non-USD currencies, that is in Euros, Pounds and Yuans (see 2000-2007 comparative tables below). The LEAP/E2020 researchers estimate that this tendency will increase in the second and third quarters of 2007 and show it in the present issue of GEAB (on subscription: during the second quarter, the recession will be confirmed in the four non-USD currencies -including in Yens, leading the US straight into the “very great depression” anticipated in GEAB N°11 as early as January 2007.

This method, so-called « multi-currency localisation » of an economy’s course, has been implemented by LEAP/E2020 for two years in order to follow the evolution of major global economies by clinging as closely as possible to a constantly moving economic and financial reality, due to the ongoing global systemic crisis. The phase of impact of this crisis in particular puts the final straw on the post-1945 economic and financial order based on the might of US economy and of the dollar. It has therefore appeared very early to LEAP/E2020 that new measurement tools were required, such as this « multi-currency » device, in order to understand better this globalised world where different strategic players, each of them representing constantly changing relative-weights, are at the centre of the world’s economic and financial activity (1). A measurement in US dollar solely can no longer grasp this new reality.

Below, LEAP/E2020 describes the various underlied facts and assumptions: yearly exchange rates, estimated growth rates and exchange rates in the 2nd and 3rd quarters. It is important to bear in mind that LEAP/E2020 was eager to base its study on the most conservative assumptions in order to avoid a statistic bias that could contribute to increase the trend. Therefore, as regards the US growth, our team used the official provisional figure of 1.3 percent GDP growth in the first quarter of 2007 (2), knowing that if we consider the 10 percent increase in the US trade deficit in March 2007 (reaching 63.9 billion USD) (3), it is very likely that the final US growth result in the first quarter will in fact range between 0.6 and 1.1 percent. Nevertheless, even based on optimistic growth figures in USD, the recession has arrived and is about to worsen quickly.

Thus, as anticipated by LEAP/E2020 in February 2007 (GEAB N°12, the month of April 2007 marks the tipping point of the phase of impact of the global systemic crisis, and signals the objective entry of the US into recession, even though official US figures are still trying to conceal the trend. Besides, in relation to this fundamental piece of information, April 2007 was also a turning point on a number of key-factors of the global systemic crisis whose evolution will experience a new acceleration. In this month’s issue of GEAB, LEAP/E2020 enters into the details of the two following analyses:

- Aggravation of the US consumer’s insolvency, profit reduction for companies depending on the US market and massive layoffs contribute to a negative retroactive loop

- Acceleration of dollar collapse, imported inflation, increase in balance of payment deficit and trade tensions with Asia and Europe smash the Fed’s consensus and thrust the US into the « very great depression »

By the beginning of next summer, the consequences of these evolving factors will directly shape the next step of the impact phase of the global systemic crisis. LEAP/E2020 already insisted on it, this crisis develops along a « spiral » type of process (whose epicentre remains in the US for the time being), not as a linear collapse. The complexity of the globalised world where this crisis takes place means that the degradation of the ancient order unfolds simultaneously but at different paces and with variable consequences throughout a whole range of sectors (economic, financial, military, diplomatic, cultural, political…).

Even when one parameter seems to stabilize, it only means that the crisis is developing on another front. As much as it is necessary to use several benchmarks to measure properly the GDPs of this century’s major economic powers and evaluate seriously their real evolution, it is necessary to watch after a whole range of factors simultaneously in order to measure, understand and anticipate the course of the ongoing global systemic crisis. Month after month, this is what the LEAP/E2020 researchers strive to do in order to anticipate not only the specific features of the crisis, but also the configuration along which the crisis will stop as it should some time between 2009-10, going from an descending spiral to an ascending one: a figure symbolically called « a surface of revolution ».

GEAB N°15 is available on subscrpition

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Notes:

(1) Those 4 countries/entities (in addition of the US) whose currencies were used in LEAP/E2020’s studies to measure the evolution of the US GDP, represented in 2006 43 percent of the world’s GDP (source IMF 2007), around 38 percent of global goods and services trade (source World Trade Organisation 2007) and around 40 percent of US international exchanges (source US Census Bureau – Foreign Trade Statistics.

(2) Source US Department of Commerce / Bureau of Economic Analysis, 27/04/2007

(3) Source US Census Bureau / Foreign Trade Statistics, 10/05/2007