After the deadline for this GEAB number last Saturday evening, our team has closely watched the unusual coincidence of all the market indicators’ collapsing: European, American and Asian stock exchanges, raw materials… and even and especially gold. Unfortunately we don’t have time to expand on this event but, anyway, we interpret it in line with everything we have written in this number. But where this number describes things still rather calmly, as still to come, we wonder whether these premises are not those of the collapse which we anticipated for the March to June 2013 period. Western austerity (American sequestration + the treatment of European austerity) which Chinese growth has ended up feeling with these poor numbers announced today has caused price collapse in raw materials and stock exchanges which involves a fall in banking assets, obliging the banks to close out their positions urgently to gain liquidity. There is a clearance sale of paper gold which is leading the dance. The phenomenon is all the more remarkable as, if it were a normal speculative process, falls in one market would benefit another. We are probably at the beginning of a panic in which all speculative positions are sold off. If a 2008 style collapse is really taking place, the question is: where will the trillions which were caught up in-extremis in the financial system in 2009 come from?
Depending on the method of political anticipation, dating the cracks is carried out by identifying the high-risk periods during which the slightest spark lights the powder-keg. The current period is a typical example where an impressive number of explosive factors are combining: new financial bubbles inflated by massive injections of public money, worldwide geopolitical instability, currency wars, political the beginning of the political war against “financial terrorism”, political crisis in Europe, massive unemployment and a damaged real economy, not counting of course public debt which is at its highest. It’s such a concurrence of factors that it raises the miracle that this situation carries on. We analyzed the reasons in the GEAB n°71, in particular the shared interest in keeping the United States on artificial respiration and the central banks’ disproportionate generosity. This last aspect has moved up a level with the Bank of Japan’s policy which this time, far from reducing the level of risk, on the contrary has amplified it as we explain below, and is an example of the headlong flight which serves as current policy for certain countries lacking solutions and which the GEAB readers know well: Japan, the United Kingdom and the United States.
Our team thus estimates that a new step in the system’s instability has been taken. Moreover, several discordant notes have just pierced the deafening silence jealously imposed by the financial world on the true situation, like the sudden “surprise” damage to all the supposed macro-economic indicators meant to reflect the “recovery”: United States (1), Canadian (2) and Australian employment (3), confidence numbers (4), computer (5) and mobile ‘phone sales (6), Chinese exports (7), BRICS countries’ car sales (8), etc.
In this issue, we present the first two of the six points in the full analysis :
THE CRISIS SQUARED OR THE HEADLONG « POLITICAL » FLIGHT
So, from the Bank of Japan which reveals its Japanese debt repurchase plan (10) making Ben Bernanke and his QE3 green with envy. If it were not that Japan has had a painful past on this issue, we would say that the atomic weapon has been armed and that the risks of a slip are immense, with consequences at the same level as the fire power. In fact, until now the enormous Japanese debt was supportable because of very low Treasury bond interest rates, about 0.5%. Investors, mainly national institutions, accepted these poor returns because inflation was negative, about -0.5%, thus giving a real return of around 1%. But tensions are already appearing, such as the largest Japanese and global pension funds threatening to exit Japanese bonds (11).
BUBBLES ON ALL FLOORS
A dollar zone suffering the death of a thousand cuts and a Fed which, on the contrary, is printing increasing amounts of currency leading to a dollar oversupply whose consequence will be the bursting of the bubble dollar. In comparison, the other economies don’t depend on their currency’s international status and, on the contrary, this can only take on increasing importance if it’s internationalized.
In order to prolong the dollar’s supremacy, in addition to the increasingly less effective usual means using oil and their military power, the United States seeks to create free exchange zones left and right. This free exchange zone topic is truly on the 2013 agenda as we wrote in the GEAB n°71. However, we anticipated that the majority would fail or remain empty shells allowing the disguise of a new protectionism: this is exactly what is happening with the negotiations between Europe and the United States which is crystallizing grassroots discontent (23) and won’t succeed quite simply because Europeans don’t want American goods (and vice-versa).
Only rare negotiations for free exchange zones can still hope to come good like those between Europe and India because they are two areas warranted to get closer to play a greater international role, but here still the pill is hard to swallow because the Indians are imposing constraints which are increasingly difficult to accept (24). The objective of the world’s major regions is, for the moment, to reinforce themselves and not open up. Not being able to go against this basic trend of regional rationales, the consequence of these free trade treaties numerous is to accentuate the currency war, the most convenient means of continuing a form of protectionism when tariff barriers are prohibited. In short, dollar safety won’t come from free trade treaties.
1 Read: Quit Blaming employment Europe for Bad Jobs News in the U.S., Bloomberg (09/04/2013)
2 Source : CBC News, 05/04/2013
3 Source : The Telegraph, 11/04/2013
4 See, amongst others, Dallas News, 09/04/2013
5 Source : Le Monde, 12/04/2013
6 Source : L’Expansion, 13/02/2013
7 Source : The Wall Street Journal, 10/04/2013
8 Source : Le Monde, 11/04/2013
10 Source : The Guardian, 08/04/2013
11 Source : Bloomberg, 03/02/2013
12 Source : The Guardian, 04/04/2013
13 Source : Wikipédia
14 Source : ZeroHedge, 10/04/2013
15 Source : Washington Post, 02/04/2013
16 La Haine by Mathieu Kassovitz.
17 For example, see The bubble bubble
18 Source : Caixin (03/04/2013), excellent article worth reading.
20 Source : Bloomberg, 08/04/2013
21 Source : ZeroHedge, 11/04/2013
23 Source : Der Spiegel, 26/02/2013
24 Source : DNA, 13/04/2013