GEAB N°18: Seven sequences of the impact phase of the global systemic crisis (2007-2009)
GEAB N°18: Seven sequences of the impact phase of the global systemic crisis (2007-2009)
Since the existence of a global crisis has been generally acknowledged, the course of events of the impact phase of the global systemic crisis has become more accurately anticipable. The psychological factors involved as well as the possible types of actions and reactions, cast a lot of light on the upcoming processes.
Today, LEAP/E2020 researchers have come to the conclusion that the impact phase of the ongoing systemic crisis would be longer than they anticipated a year ago (cf. GEAB N°8). Indeed, the magnitude of the first banking financial shock felt last August indicated to our team of researchers that the impact will develop under the form of seven sequences or seven major shocks affecting sometimes specifically the world's main regions.
The phase of impact will spread over at least two years starting from April 2007 « tipping-point » (cf. GEAB N°12) until the end of 2009. Then will begin a so-called “settling” phase (cf. GEAB N°5) corresponding to the emergence of new sustainable global order equilibriums.
Until June 2007, previous issues of GEAB anticipated and described the system's sinking down and warned against upcoming collapses. From now on, our team will focus on anticipating the development of the seven sequences of the collapse.
In this month's issue of the GlobalEurope Anticipation Bulletin (N°18, October 16, 2007), these sequences are desbribed in nature and timing. This timeline has also been gathered in a synthetic chart.
This public announcement provides the full description of the first sequence in addition to the complete list of sequences.
Sequence 1 - US debts infect the financial planet: A century after the « Russian loans”, meet the “American debts”!
Sequence 2 - Stock market collapse, in Asia and the US mainly: between - 60% and -30% in two years according to the regions
Sequence 3 - Bursting of global housing bubbles: UK, Spain, France and emerging countries
Sequence 4 - Monetary storm: Volatility at the highest / USD at the lowest
Sequence 5 - Global economy in stagflation: Recessflation in the US, soft growth in Europe, recession
Sequence 6 - « Very Great Depression » in the US, social unrest and the militaries' growing influence on public affairs
Sequence 7 - Major acceleration in world's strategic rebuilding, attacks on Iran, Israel on the brink, Mid-eastern chaos, energy crisis
Sequence 1 – US debts infect the financial planet: A century after the « Russian loans », meet the « American debts » (2nd quarter 2007 – 3rd quarter 2008)
As LEAP/E2020 described in GEAB N°17, the financial aspect of the current crisis originates from the fact that, in the last two decades, the US economy specialized in the production of debts mostly (household, corporate and public ones), knowing that an increasing share of this collective debt was sold to foreign investors who are beginning to realise that they might never see some part of their loans back (thanks to which the “American Way of Life” financed itself in the past few years). The most prudent, or rather the most sagacious, are even beginning to wonder if they will be paid back at all. The comparison with the “Russian loans” is not a mere trait of humour , it is in fact quite reasonable ; indeed, if today they did not have the possibility to print their own money in order to honour their payments, the US would simply be defaulting given that their collective debt exceeds 400 percent of their GDP.
Component of US total debt (private and public) - 1957/2006 – Sources: Grandfather Economic Report/ US Federal Reserve
For the time being, due to the fact that they are still in a central position in terms of currency and as pillar of the world's financial system (1), they make the most of the constant weakening of their currency to reimburse the rest of the world into « phony money » (a trend anticipated in February 2006 in GEAB N°2). They have also tried to conceal the insolvency of their economic players by having Wall Street's large banks (and their greedy international partners) reselling « virtual » financial assets, based on abstruse mathematical formulas, the famous CDOs (cf. GEAB N°17). A similar method of valorisation was used in the Ancient times when the future was read by examining chicken entrails. CDOs work along the same principles (except that today investors' portfolios, instead of chickens, are being eviscerated): these fictitious assets are all over the banks' (big and small) balance sheets: hedge-funds portfolios, corporate cash flows, individual investments... And no one has the faintest idea of what they are worth (2) - which, in the world of finances, would tend to mean that they are not worth anything.
Losses announced by the large international banks these days puzzle our team: a small twenty billion USD only in total. Since mid-August 2007, a number of interventions of historical magnitude by the biggest central banks injecting hundreds of billions of Euros in the global financial system in order to « reboot » (with no significant results up to this day) (3) the “liquidity pump” would only entail a small twenty billions USD of negative fallout in their profit growth? According to LEAP/E2020, it can only be the sign of an extreme manipulation of share-holders, savers and investors (4).
Well, here is a clear indication that those who believed that the financial crisis was behind us were mistaken (unless they were simply speculating on the stock markets) (5) : large US banks recently made the decision to create a « pool » of 75 billions USD in order to face the risk of collapse of the CDOs value, and therefore of the stock market, in case the liquidity crisis extends further. According to LEAP/E2020, the money currently vanishing in the air as the awareness grows that those CDOS are not worth much, probably amounts to hundreds, instead of dozens, of billion USD.
Thanks to this 75 billions “shooting power”, US Treasury Secretary and former Goldman Sachs chairman Hank Paulson, orchestrated US banks' direct contribution against the looming confidence crisis. According to our team, he is probably one of the very few political executives in the US to be aware somehow of the scope of the unfolding crisis and to try something against it (6) (instead of being merely reactive such as Fed chairman Ben Bernanke). He is probably hoping to prevent this liquidity crisis to turn into an immense confidence crisis affecting all US financial and monetary values. He also probably realised that central banks interventions would not be enough to contain the problem.
Indeed, after two months of massive financial infusions, after an aggressive rate drop by the Fed (-0,5%) and after a stop in ECB rate growth, the situation is not back to normal. Large financial institutions, namely US ones, are merely gaining time in the hope that the situation will improve (that's for the most optimistic or naive of them) or more probably to organise the disappearing of their losses from their balance sheets by transferring them to other operators and by arranging that the entire profession participates in this sleight of hand. US banks are of course on the frontline on this case because it is their market which is vanishing. The newly created “pool” indicates that the next financial shock is coming soon, and that it will be even more violent that last August (our team anticipates it between November 2007 and February 2008).
According to LEAP/E2020, one more year is needed to evaluate accurately the extent of the losses generated by the subprime crisis and its amplification via CDOs. Meanwhile, confidence in the US financial system (and in Western financial systems altogether) will continue to fall (7). The breathing space provided by the Fed's rate drops is drained, unless by taking the risk of an utter collapse of the USD (8); a possibility which US economic partners (Europeans mainly and Chinese just behind) conceive and try to prevent.
In the previous issues, we described the predictable consequences of this financial crisis for the partners of the United States and owners of US financial assets. However we should bear in mind that this crisis has a major impact on the US themselves, as 30 percent of the US debt is owned by American individual investors. We shall come back on this in the sequence on America's “Very Great Depression”.
(1) The global systemic crisis is precisely the process entailing the end of this advantageous position which the US enjoyed during fifty years.
(2) « Moody's cuts credit ratings on about 2000 subprime bonds », Wall Street Journal, 12/10/2007
(3) « Asset-backed paper falls for ninth straight week », MarketWatch/DowJones, 11/10/2007
(4) « What Citigroup did'nt say », MarketWatch/DowJones, 07/10/2007
(5) « Big banks, Treasury discuss help for securities markets », MarketWatch/DowJones, 13/10/2007
(6) We had already noticed that when he tried to prevent a frontal trade confrontation between China and the US under the pressure of US Congress and industrialists; even though his efforts did not have a significant impact.
(7) « Lazy portfolios betting big overseas », MarketWatch/DowJones, 08/10/2007
(8) « Strong silence from US on dollar's weakness », International Herald Tribune, 10/10/2007
Mardi 16 Octobre 2007