This second quarter’s fundamental event about to shove most players’ anticipations over the coming months, is certainly the final and simultaneous failure of the two key-strategies defined by US leaders, i.e.:

. in the economic, financial and monetary fields, the Fed’ policy initiated a year ago when M3 publishing was abandoned and aimed at substituting a financial and stock bubble to the bursting housing bubble in order to maintain US growth (and capital attractiveness) has now patently failed, thus entailing a historical loss of the Fed’s control on US interest rates (for the first time since 1918, except in times of war or social/economic depression)

. in the military, strategic and diplomatic fields, the stability plan for Iraq is a complete failure taking place in the framework of Washington’s growing political paralysis (which LEAP/E2020 plans to describe in GEAB N°17 - on subscription.

Spring 2007 indeed appears as the tipping point of the global systemic crisis: the US economy went into recession, US interest rates were restored, the bond market is in crisis, the subprime crisis begins to hit large US financial institutions such as Bear Stearns (1), Goldman Sachs (2) and Freddie Mac (3), the US housing crisis is speeding up (4), the paralysis of Washington’s political power grows (5), the isolation of the US on the international arena increases, the security plan for Iraq proves to be a complete failure, the US is powerless against Iran, the relaunch of the Israelo-Arab peace process aborts, trade tensions between China and the US rise, a growing number of countries (Kuwait, Syria,…) flee from the US dollar, etc…

However, according to LEAP/E2020 researchers, it is undeniably this Fed’s and White House’s (Pentagon’s) double simultaneous failure which affects most the unfolding of the global systemic crisis for the months to come, as it precipitates China and the EU into the « vacuum » thus created and thrusts the US into « recessflation ».

Rest of the world holdings of US financial assets / Source US Federal Reserve - PrudentBear

With regard to the consequences of this failed attempt of economic relaunch conducted by Ben Bernanke, the Fed’s loss of control over US interest rates is of historical dimension (6).

Today, the Fed’s official stance pretends that the US economy will grow again in the coming months and reduces to a mere anecdote the collapse of US growth in the first quarter (down to 0.6 percent only), anticipating a 2.5 see 3 percent growth altogether in 2007 (7), knowing that recent economic previsions published by the UN place US growth around 0.5 percent in 2007 and 2008 (8). As early as March 2007, LEAP/E2020 anticipated a growth below 1 percent in the third quarter of 2007 (in consideration of the first terms 0.6 percent, annual growth is very likely indeed to be at best below 2 percent, more likely negative in the end).

Liquidities withdrawn by US homeowners between 1991 and 2006 / Source Washington Post - Alan Greenspan & James E. Kennedy

Nevertheless this official stance is contradicted by most available objective indicators (corporate performance, employment,...), even if it seems supported by a whole range of other indicators, either indicators carefully ‘cooked’ by the Federal government or subjective indicators reflecting for instance the impact of official statements on public opinion. LEAP/E2020 already described in 2006 how opinion manipulations work; and in the present issue of GEAB, our team of researchers details a number of objective indicators that can help to anticipate precisely US economic trends in the next quarters (in particular: hidden unemployment rise, « phantom-GDP » mechanism of US growth overrating, or increasingly devastating impact of the housing and subprime crises).

A great lack of transparency reigned over the Fed’s actions in terms of monetary mass and global assets in USD (such as the end of M3 publication at the end of March 2006) (9). Well this strategy proved to be a complete failure. The attempt to substitute a financial/stock bubble instead of the housing bubble, like Greenspan did when he turned the internet bubble into a housing bubble, in order to maintain US growth did not succeed.

-------
Notes:

(1) Bear Stearns opens the bal with second-quarter profits dropping by 10 percent, in relation to the subprime crisis. But this second quarter is probably the first of a long series to experience the full effect of a crisis that is only beginning (described in the previous issues of the Global Europe Anticipation Bulletin. Recent declarations by Bear Stearns leaders provide a clear picture of what large US investment banks outght to be expecting : after the subprime loans, Alt-A loans (less risky) are beginning to provoke corporate losses and hedge-funds liquidations for 4 billion worth of mortgage-backed bonds. Source : Bloomberg, 06/14/2007

(2) Source : MarketWatch/DowJones, 06/14/2007

(3) Source : MarketWatch/DowJones, 06/14/2007

(4) In June 2007, Harvard University released the yearly « Joint Center for Housing Studies » on housing trends in the US. The study clearly suggests that the housing crisis is only beginning as « prices only begin to fall, riskiest loans are only about to enter refinancing period, and credit restrictions only started ». The impact on the financial sphere, consumption and employment is still ahead and will materialize more and more roughly from this summer onward.

(5) President G.W. Bush’s approval rating fell to 29 percent, with 66 percent of respondents disapproving of him (his lowest result ever). In the same Wall Street Journal/NBC poll, reported by MarketWatch/Dow Jones 06/13/2007, 68 percent of Americans consider that their country is headed in the wrong direction. 23 percent approve the performance of the 1-year long Democrat-controlled Congress. Iraq and the economy being key-factors of US public opinion today, the gap between the « official » figures and the optimistic statements we hear today on the US economy on the one hand, and the American opinion on the state of their country on the other hand, is clearly abyssal.

(6) The military and strategic aspects will be described in GEAB N°17 (on subscription.

(7) Source : GlobalInsight.

(8) Source : Rob Vos, Director of the Development Policy and Analysis Division of the Department of Economic and Social Affairs (DESA), UN, 05/30/2007

(9) In the second issue of GEAB (February 2006), LEAP/E2020 announced the discontinuance of M3 publication.

(10) Recent UN economic revised forecasts anticipate a 0.5 percent US growth in 2008, far from the 2 to 3 percent announced by the US authorities and largest banks and financial media. Director of the Development Policy and Analysis Division of the Department of Economic and Social Affairs (DESA), UN, 05/30/2007

(11) Source : MarketWatch/DowJones, 06/12/2007

(12) Source : Financial Times, 06/12/2007

(13) Source : MsnMoneyCentral / Financial Times, 06/12/2007

Lundi 30 Août 2010

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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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