The Slog: America’s growth continues to stutter, and China has accepted the need to consolidate. Together – especially the latter – they leave Australia with nowhere to go, and no way to grow. Faith in the eurozone is draining away, and ClubMed bond yields are spiking again. Draghi at the ECB takes less and less notice of German debt hysteria, and the Franco-German rapprochement upon which the EU was based is crumbling rapidly. If Greece defaults, French banks will fall over. If Spain does, Deutsche Bank will disintegrate. If any of those events occur, the carnage on madly over-leveraged Wall St will be bloody indeed.
QE hasn’t had any lasting economic effect in the USA or Great Britain. Monetary austerity in Europe has halted growth and is destroying ClubMed. Subordination of bondholders and depositor haircuts have scared all the risk capital out of the eurozone….a fact which, incredibly no media have yet raised with Signor Draghi, Brussels or Berlin. Every time the US Fed so much as hints about an exit from stimulation, the world’s stock markets begin to panic. Japan’s desperate (and foolhardy) stimulus plus devaluation rush is already looking fragile. A major buying attack on the Yen last Thursday almost sent the policy into reverse.
Last week, two major nations – France and India – banned consumer mail-based sales of gold.The imbalance caused by Zirp (without which almost every Western sovereign debt would spiral out of control within months) has evoked a stampede into bullion and top end property. The physical gold market itself has been cynically rigged against all the demand evidence, as central bankers rush to hoard as much of it as they can at the ‘right’ price. But Zirp itself has in turn produced no increase in the offering or taking up of risk capital, and it too now has nowhere to go.
This leaves only the property and stock markets as places for investment going forward. But stock prices are already far too high and totally unrelated to real business earnings. Nobody – not even the US – has unlimited funds available for QE. As world trade slumps, sovereign income declines, and welfare costs rise, printing money on a huge scale becomes the only option open. Ease off from that, and stock markets crash, with investors seeking more and more gold. A rapid spread of the French and Indian actions is surely inevitable.
What happens when European and Asian bond markets are unsafe, gold is blocked off, and the stock markets are topping out? You head back towards Tbonds and invest in the USDollar. As to what happens when a strong USDollar makes its exports even more expensive for a broken Europe and a devaluing Japan well….nobody knows, because it’s never been tried. But words like slump spring to mind. In truth, it will mean that the myth of globalist mercantilism has been finally found out for what it has always been – a false God based on a fantasy Weltanschauung.
Neocon laissez-faire globalism has been sold for over three decades now as the train leaving for all stations to Eternal Growth. That was always a misrepresentation. The second biggest event over that period has been the emergence of Brics in general and China in particular. Their growth too is now uncertain; in South America especially, some sovereign fiscal management policies are at last coming under the spotlight. Russia has an economy massively overdependent on energy exports, with a world about to enter slump and an EU working hard to exploit other hydrocarbon reserves.
The third biggest event was the steady progress of the European Union towards federalism, and the launch of the 17-nation euro. This too has been shown up as a bonkers idea (it always was) and for both market and politico-fiscal reasons it is effectively a dead duck. At some point in the next ten weeks, the German Constitutional Court in Karlsruhe must rule on whether Draghi’s ECB has supported sovereign States financially in a manner that will force Germany to withdraw from the euro. As he obviously has, the Merkeschäuble could well find itself sitting on a spike: the bankfurters will rejoice, the electors will think twice – and the entire nature of September’s German general election will change.
The conclusion that the above facts suggest is hard to resist. All three economic innovations since the early 1980s now present as a five-card run with the Ace missing. None of the things tried by the easers, zirpers, manipulators, riggers, devaluers and cutters have worked.
The global investment banking system allegedly servicing the eternal growth paradigm is structured an leveraged on exactly the same insane assumption. It isn’t designed for slump. It couldn’t survive one. To attract cash and thus lend for growth requires both confidence, and room to raise interest rates. The banks have neither.
People need to invest, but all the returns have been removed, and other avenues are being closed. Sovereigns need to export and raise taxes in order to repay debt, but they can’t do either of those things in the medium term…unless they want to make things even worse.
Thus: rising sovereign debt, wobbly banks, falling consumer disposable incomes, plunging output, and no new ideas.
The Friedman-to-big-bang-globalist-growth model has failed miserably. It is time to put away childish things, and wake up.