Alistair Darling has never looked so relaxed. David Cameron observed that if Darling and and the Prime Minister sat any closer to each other on the front bench yesterday, they would be kissing. The Labour front bench has never looked so “at ease” and with good reason. There’s absolutely NOTHING that they can now do about the economy, NHS or any of the other major conundrums of State. They are in a good place and enjoying the rapid approach of Spring and what it will bring – the dissolution of Parliament.
The crippled economy appears to have been left to its own devices as it staggers and bumps along from crisis to crisis. The politicians, bankers and economists seem to have been reduced to the role of observers, purveyors of increasingly convoluted euphemisms and “guessers” who still have not grasped the difference between two fundamental Theories: Keynes and Chaos.
It may be an idea to try to slash a path through the current economic goings-on in order to see if we can make any sense of it all.
Our Chancellor’s current laid-back demeanour means one of two things. It means that either he has adopted the fatalistic attitude of one who cannot wait to put his hands on the severance pay, begin his memoirs and give Gordon Brown the shafting that he has been deserving of for the last 13 years OR maybe he really doesn’t understand the problem.
The Winter Olympics, Christine Pratt, Gordon Brown and the Coles may be hogging the front pages but perhaps that’s all for the best because what could be on the front pages is strictly Certificate X. In fact, some of what is about to happen to the world’s economy would never pass the scrutiny of the British Board Of Film Censors. We are heading for a cross between a social Exorcist and an economic Armageddon. So let’s begin.
I have either observed or worked within the Financial Services Industry for over 30 years and remember the days before the present circus of exotic financial instruments and comedy accounting. Stockbrokers and Fund managers were not riding financial tigers or unbroken investment mustangs that were impossible to dismount without a great deal of pain. There were long bull markets interspersed with the occasional short sharp shock of a quick bear. There was order with only the occasional panic which would always be sorted out without the aid of the Bank of England’s printing presses. Those were the “My word is my bond” days.
Investment banks would never have cooked a country’s books in order to replicate what the banks themselves were doing in order to hide gargantuan unsustainable debts. They would not have charged Greece 0ver £190 million for their trouble so that “on paper” Greece woud look financially fit enough to join the Euro.
Four months ago, Greece’s 10-year bond was trading happily, it was stable and rising. Then, global investors began to dump Greek bonds in huge volumes and with unprecedented speed. The whole thing was so brutal that the custodians of the Greek economy did not realise the full extent of the disaster until their economy was exhibiting all the symptoms of near-death. Thanks to Goldman Sachs who had (legally) helped them to cook the books, Greece had been living and borrowing in an economic cloud-cuckoo land. Currently, they are standing on of the equivalent of an “event horizon” at the edge of an economic Black Hole.
Three months ago, Portugal’s 10-year government bond also peaked. That is also being dumped by global investors. Nobody wants it. Portugal’s problem mirrors that of Greece. To put it very simply: overborrowed with no collateral. Just like our banks.
Investors are dumping Greek and Portuguese paper because they are nearly 100% certain that their current economic positions are unsustainable and that both countries will default.
Italy is keeping afloat through the medium of creative accounting. The next economy to tumble after Portugal and Greece will be Spain which is running out of both time and cheques with which to support its 20% unemployment rate. The ship that is probably going to support the sinking rats is the holed twin-hull of France and Germany who both know that they need to bail out Greece. After that is achieved, there is severe danger of a Euro-queue forming.
The Euro is doomed because France and Germany will be breaking that most sacred of rules which states that “Thou shalt not bail out thy Euro neighbour”. That rule was enshrined in statute so that a Euro economy in trouble would never drag down any other Euro-user.
Both the French and the Germans are continuing their own spending orgies and instead of doing something now, they are following the United States’ and United Kingdom’s lead. They are postponing the day of reckoning and merely watching the final death throes of the Greek economy.
It looks as if the Euro is about to be sacrificed.
The American dollar will also soon be needing some sort of life support. Rating agency Moody’s has already warned the States about its giant but still accelerating debt.
Dollars and Sterling have been pumped rather over-enthusiastically into both the American and British banking systems and that has directly resulted in an overvalued stock-market and the feeling is that we are now about to witness a fall in market values which will continue into 2013. That will be mirrored by the highest-ever percentage rise in the price of Gold, Platinum, Palladium and even silver. Gold may well cross the $2000 per ounce barrier.
The dollar will continue its slide which will accelerate by the middle of 2010 , with its downward journey picking up speed by the end of the year. The pound sterling will follow because currency speculators will be falling over themselves to buy currencies such as Australian and Canadian dollars. From flashy and weak to unexciting but solid.
At the front-end of 2011, we will see the beginning of the dreaded second dip in the recession which many commentators seem to think is gradually exhibiting those iconic green shoots of recovery. Those shoots will turn brown and atrophy.
All this will happen because back in 2009, whole states made the decision to sacrifice themselves in order to save their dead banking systems. History will probably judge these to be the worst economic decisions ever made. A country has never sacrificed its economy and welfare of its citizens in order to save a broke and discredited banking system which it had itself allowed to expand without proper control.
By the end of 2011 and into 2012, most countries will follow the Greek economy – which is currently exhibiting the green shoots of a civil unrest which will soon spread throughout Europe and the Americas . That will happen because of of an exceptional set of events which will all take place more-or-less simultaneously . Western economies will collapse as their GDPs, currencies and stock markets all bottom-out .
That will finally signal the inevitable dawn of the wealth-shift from West to East.
China will begin to call ALL the shots because Western economies will have been painted into an economic corner with no way out.
Our Chancellor knows that after the next election, he will probably be on the Opposition benches. In the unlikely event of a Labour Prime Minister being asked to form a government, Darling will probably be “reshuffled” out of the Treasury. Either way, he will be able to continue what he has already started to do – observe the sunset of the Western economies.
The green shoots of economic recovery? We’ve been looking in the wrong place. They’re in China.