CONFIRMATION OF GLOBAL SYSTEMIC CRISIS-USA-DOLLAR-IRAN
LEAP/E2020 PUBLIC COMMUNICATION
March 15, 2006
USA-Dollar-Iran / Confirmation of Global Systemic Crisis end of March 2006
Nine indicators prove that the crisis is unfolding
Nine indicators enable LEAP/E2020 to confirm the beginning of a global systemic crisis by the end of March 2006. These indicators are described in this month’s GlobalEurope Anticipation Bulletin- coordinated by Franck Biancheri – and 5 of them are presented in this public communication. Recent international trends affecting the international financial system in particular, as well as preoccupying trends in the US, namely as concerns the reliability of statistics on the US economy[1], have brought our research team to conclude that this global systemic crisis is already unfolding.
M3 [2] is really the decisive indicator…
As illustrated by most of the 5 indicators described in the present communication, the past weeks have confirmed how decisive the US Federal Reserve’s decision is to stop reporting M3 [3] on March 23, 2006. LEAP/E2020 is now convinced that this decision portends a period of accelerated money-printing by the Fed, concealed behind public statements that inflation in inder control, that will result in the collapse of the US Dollar and the monetarisation of US debt (public and private), which a growing number of US experts now feel will never be repaid [4] given the constantly growing gigantic amount (the US public debt now represents more than 8,000 [5] billions dollars, i.e., approximately four times the federal budget in 2006 [6]) ). According to the very conservative Heritage Foundation, if we also take in consideration the budgetary consequences of recent decisions by the Bush Administration regarding health and pensions, the real debt is USD 42,000 billions, or 18 times this year’s federal budget, and 3 ½ times the US GDP in 2005 [7].
… as well as Iran
While confirming the catalytic role of the opening of an Oil Bourse priced in Euros in Iran (recent Iranian allegations [8] suggest that if the crisis worsens, Iranian authorities might simply decide to switch all foreign transactions to euros, following the example set by Syria [9] a few weeks ago) and/or that of a US and/or Israeli attack on Iran – probably a « surprise-attack » conducted without the support of the UN Security Council [10]-, the scope of the reaction to the publication of last month’s LEAP/E2020 Alert has revealed a deeply-rooted anxiety among a significant part of the financial system’s players, among individual actors mostly. This impact was particularly important in the US from where we received comments mainly focused on M3, real-estate bubble, US deficits and US economic statistics reliability issues. Considering these reactions, LEAP/E2020 has decided to concentrate this second communication on these aspects of the global systemic crisis, all the more since a number of very preoccupying facts appeared in the past weeks.
The real-estate bubble starts collapsing …
Some of the predictions made by LEAP/E2020 have already become true, including the bursting of the housing bubble in the US (new home sales were down 5% in January 2006 compared to January 2005, the first time in 5 years this has happened; and the inventory of homes available for sale represents a 6-month supply since 1998 [11]). The end of the housing bubble will progressively impact US household consumption, which is highly dependent on growing mortgage-mortgage based household debt [12]. . In parallel, the slowdown in the housing sector will directly affect employment, since this sector alone has accounted for 40% of private jobs created over the past five years in the United States.
… currencies of emerging countries first ones affected by the unfolding crisis…
During the week of February 20, 2006, Iceland’s Krona was downgraded by a credit rating agency, which called Iceland’s credit deficit unsustainable. The Krona instantly plummeted 10%, dragging emerging market currencies such as those of Brazil, South Africa, Mexico and Indonesia [13] , down due to the speculative positions taken by currency speculators. During the week of March 6, 2006, it was the turn of Central and Eastern European currencies [14] to plummet as a result of excessive deficits and the implementation of new policies (increased interest rates and/or removal of liquidities) by the European and Japanese central banks.
Finally, since March 14, 2006, including those in Saudi Arabia and the UAE, have begun a nose-dive (a 15% loss in just 24 hours, and local experts expect a 50 to 60% drop in the coming weeks).
… and the crisis of confidence in the US economy is playing a key-role in triggering a global crisis
Among the factors suggesting that the crisis is beginning, is the extraordinary impact of LEAP/E2020’s February 2006 Alert itself, which, in and of itself, is an indicator of a high level of concern worldwide. In our opinion, the international financial system, and in particular its “dollar-base” [15], now rely mainly on two interconnected pillars: on the one hand, the confidence placed in the system itself and on the other, the statistics describing the evolution of the systems. In terms of the second pillar, the worldwide impact of the LEAP/E2020 Alert is a significant indicator, worth analysing [16] , given the dozens of millions of pages viewed, the hundreds of thousands of individual visitors to our website, the spontaneous translations of the Alert into some twenty languages, the posting of the Alert on hundreds of websites, reporting by the media and comments on blogs worldwide; and in particular, the popularity of the Alert in the US. All this reflects a growing concern about the trends in the international financial system. This concern is an integral part of the global systemic crisis given that psychological factors, such as confidence, have become central in the system.
Five out of nine indicators that the systemic crisis has already begun
These are five out of the nine indicators proving, according to LEAP/E2020, that the system crisis is unfolding:
1. the US government has been in technical default since mid-February 2006, , because the debt ceiling authorized by the Congress has been breached. The US government has suspended sales of “State and Local Government series (SLGS) non-marketable Treasury Securities” [17]. US Treasury Secretary John Snow announced that, if Congress has not approved an increase in the statutory debt ceiling by USD 800 billion by mid-March (i.e., 10% of the current ceiling of USD 8,200 billion, which has already been raised twice in the past three years), the technical default will become very problematic.
2. Fed’s Vice-Chairman in charge of crisis management Roger Ferguson unexpectedly resigned, one one week after the publication of our February Alert, despite the fact that he still had eight years to serve [18]. Roger Ferguson won high marks for his handling of the Fed’s initial response to the Sept. 11, 2001 attacks, while Greenspan was in Europe. His opposition to the strategic choices by new Fed’s chairman, was notorious.
3. The Bank of China, the country’s top foreign exchange lender, has decided to allow depositors to buy and sell gold using their USD in order to diversify its holdings, today mostly in USDs [19].
4. US public and trade deficits continue to increase (USD 119 billion in February and USD 68,5 billion in January), indicating that non one is in control of the current trends which are only worsening. The monthly deficits the highest ever recorded. Washington no longer tries to talk about improvements, but prefers to say that these deficits do not mean anything because “the economy has changed”. This explanation was also used on the eve of the collapse of the « Internet » bubble, couched in terms of the “new economy”. [20] As a point of interest, over the past five years, the US borrowed more money from the rest of the world than it did in its entire history from 1776 to 2000 [21].
5. Doubts grow even in the US on the reliability of US economic statistics [22], leading to counter-analyses showing that, in the last three years, US GDP has in fact decreased and not increased [23] , and that current real inflation rates are between 6% and 12% (with direct consequences of course on the real profitability of the various types of investments).
Three different measures of the consumer price index:
in blue, the method used under the Clinton-presidency, in orange, the method used by the Bush administration, and in yellow, the method currently elaborated by US authorities.
Anticipation is therefore really required in order to limit the damage
A systemic crisis expands like a tsunami progressing through an ocean and hitting different coasts at different moments. When the wave hits a coast, the tsunami has been formed already long ago. An early information is clearly the only way to take some safety measures. In any event, considering the nine indicators developed in GEAB 3, it is now clear for LEAP/E2020 that the crisis is entering its triggering phase. The GlobalEurope Anticipation Bulletin N°3 details all these analyses and points at some tracks of solution in order to help private and public operators get prepared to make proper decisions.
Considering the importance and convergence of the trends confirming the portended systemic crisis, only trends as powerful could reverse the evolution described by LEAP/E2020. Until today, LEAP/E2020 was not able to identify the least of such reverse trends. Contrary to what some may say, « crises happen even when they are not of collective interest » (WWI or the 1929 crack already proved that). The Iran crisis, the Iraq civil war, or the deterioration of US deficits prove that our international leaders have no hand over the events. It is vain to hope that they will in the last minute appear as « deux ex machina » and solve problems that they contributed to develop over the past decades. Lastly, in the event a crisis occurs, and contrary to what happened in the past decades, the Dollar will not be the reserve currency it used to be, due to the fact that the loss of confidence in the US and in their currency (including by the Americans themselves) is precisely one of the components of the new crisis.
_____________
Apart from the analyses detailed in GEAB 3, LEAP/E2020 would like to give two clear advices to the readers of this public communication:
*
during the unfolding of a global systemic crisis, the main strategy to adopt consists in diversifying as much as possible one’s holdings, because given the unpredictability of the unfolding, only a diversification can limit the loss. It is important to bear in mind the following aspect: in a context of general crisis, the aim is no longer to gain more but to avoid losing too much.
*
as regards currencies, LEAP/E2020 noticed that its strategic analyses and advices concerning the Euro were largely read and commented at the highest level of the Eurozone governance system. This reinforces our feeling that Euroland will be in the coming months the only monetary area capable of resisting a Dollar crisis. Decision-makers have grown aware in the proper timing of the measures to take on D-Day.
March 15, 2006
USA-Dollar-Iran / Confirmation of Global Systemic Crisis end of March 2006
Nine indicators prove that the crisis is unfolding
Nine indicators enable LEAP/E2020 to confirm the beginning of a global systemic crisis by the end of March 2006. These indicators are described in this month’s GlobalEurope Anticipation Bulletin- coordinated by Franck Biancheri – and 5 of them are presented in this public communication. Recent international trends affecting the international financial system in particular, as well as preoccupying trends in the US, namely as concerns the reliability of statistics on the US economy[1], have brought our research team to conclude that this global systemic crisis is already unfolding.
M3 [2] is really the decisive indicator…
As illustrated by most of the 5 indicators described in the present communication, the past weeks have confirmed how decisive the US Federal Reserve’s decision is to stop reporting M3 [3] on March 23, 2006. LEAP/E2020 is now convinced that this decision portends a period of accelerated money-printing by the Fed, concealed behind public statements that inflation in inder control, that will result in the collapse of the US Dollar and the monetarisation of US debt (public and private), which a growing number of US experts now feel will never be repaid [4] given the constantly growing gigantic amount (the US public debt now represents more than 8,000 [5] billions dollars, i.e., approximately four times the federal budget in 2006 [6]) ). According to the very conservative Heritage Foundation, if we also take in consideration the budgetary consequences of recent decisions by the Bush Administration regarding health and pensions, the real debt is USD 42,000 billions, or 18 times this year’s federal budget, and 3 ½ times the US GDP in 2005 [7].
… as well as Iran
While confirming the catalytic role of the opening of an Oil Bourse priced in Euros in Iran (recent Iranian allegations [8] suggest that if the crisis worsens, Iranian authorities might simply decide to switch all foreign transactions to euros, following the example set by Syria [9] a few weeks ago) and/or that of a US and/or Israeli attack on Iran – probably a « surprise-attack » conducted without the support of the UN Security Council [10]-, the scope of the reaction to the publication of last month’s LEAP/E2020 Alert has revealed a deeply-rooted anxiety among a significant part of the financial system’s players, among individual actors mostly. This impact was particularly important in the US from where we received comments mainly focused on M3, real-estate bubble, US deficits and US economic statistics reliability issues. Considering these reactions, LEAP/E2020 has decided to concentrate this second communication on these aspects of the global systemic crisis, all the more since a number of very preoccupying facts appeared in the past weeks.
The real-estate bubble starts collapsing …
Some of the predictions made by LEAP/E2020 have already become true, including the bursting of the housing bubble in the US (new home sales were down 5% in January 2006 compared to January 2005, the first time in 5 years this has happened; and the inventory of homes available for sale represents a 6-month supply since 1998 [11]). The end of the housing bubble will progressively impact US household consumption, which is highly dependent on growing mortgage-mortgage based household debt [12]. . In parallel, the slowdown in the housing sector will directly affect employment, since this sector alone has accounted for 40% of private jobs created over the past five years in the United States.
… currencies of emerging countries first ones affected by the unfolding crisis…
During the week of February 20, 2006, Iceland’s Krona was downgraded by a credit rating agency, which called Iceland’s credit deficit unsustainable. The Krona instantly plummeted 10%, dragging emerging market currencies such as those of Brazil, South Africa, Mexico and Indonesia [13] , down due to the speculative positions taken by currency speculators. During the week of March 6, 2006, it was the turn of Central and Eastern European currencies [14] to plummet as a result of excessive deficits and the implementation of new policies (increased interest rates and/or removal of liquidities) by the European and Japanese central banks.
Finally, since March 14, 2006, including those in Saudi Arabia and the UAE, have begun a nose-dive (a 15% loss in just 24 hours, and local experts expect a 50 to 60% drop in the coming weeks).
… and the crisis of confidence in the US economy is playing a key-role in triggering a global crisis
Among the factors suggesting that the crisis is beginning, is the extraordinary impact of LEAP/E2020’s February 2006 Alert itself, which, in and of itself, is an indicator of a high level of concern worldwide. In our opinion, the international financial system, and in particular its “dollar-base” [15], now rely mainly on two interconnected pillars: on the one hand, the confidence placed in the system itself and on the other, the statistics describing the evolution of the systems. In terms of the second pillar, the worldwide impact of the LEAP/E2020 Alert is a significant indicator, worth analysing [16] , given the dozens of millions of pages viewed, the hundreds of thousands of individual visitors to our website, the spontaneous translations of the Alert into some twenty languages, the posting of the Alert on hundreds of websites, reporting by the media and comments on blogs worldwide; and in particular, the popularity of the Alert in the US. All this reflects a growing concern about the trends in the international financial system. This concern is an integral part of the global systemic crisis given that psychological factors, such as confidence, have become central in the system.
Five out of nine indicators that the systemic crisis has already begun
These are five out of the nine indicators proving, according to LEAP/E2020, that the system crisis is unfolding:
1. the US government has been in technical default since mid-February 2006, , because the debt ceiling authorized by the Congress has been breached. The US government has suspended sales of “State and Local Government series (SLGS) non-marketable Treasury Securities” [17]. US Treasury Secretary John Snow announced that, if Congress has not approved an increase in the statutory debt ceiling by USD 800 billion by mid-March (i.e., 10% of the current ceiling of USD 8,200 billion, which has already been raised twice in the past three years), the technical default will become very problematic.
2. Fed’s Vice-Chairman in charge of crisis management Roger Ferguson unexpectedly resigned, one one week after the publication of our February Alert, despite the fact that he still had eight years to serve [18]. Roger Ferguson won high marks for his handling of the Fed’s initial response to the Sept. 11, 2001 attacks, while Greenspan was in Europe. His opposition to the strategic choices by new Fed’s chairman, was notorious.
3. The Bank of China, the country’s top foreign exchange lender, has decided to allow depositors to buy and sell gold using their USD in order to diversify its holdings, today mostly in USDs [19].
4. US public and trade deficits continue to increase (USD 119 billion in February and USD 68,5 billion in January), indicating that non one is in control of the current trends which are only worsening. The monthly deficits the highest ever recorded. Washington no longer tries to talk about improvements, but prefers to say that these deficits do not mean anything because “the economy has changed”. This explanation was also used on the eve of the collapse of the « Internet » bubble, couched in terms of the “new economy”. [20] As a point of interest, over the past five years, the US borrowed more money from the rest of the world than it did in its entire history from 1776 to 2000 [21].
5. Doubts grow even in the US on the reliability of US economic statistics [22], leading to counter-analyses showing that, in the last three years, US GDP has in fact decreased and not increased [23] , and that current real inflation rates are between 6% and 12% (with direct consequences of course on the real profitability of the various types of investments).
Three different measures of the consumer price index:
in blue, the method used under the Clinton-presidency, in orange, the method used by the Bush administration, and in yellow, the method currently elaborated by US authorities.
Anticipation is therefore really required in order to limit the damage
A systemic crisis expands like a tsunami progressing through an ocean and hitting different coasts at different moments. When the wave hits a coast, the tsunami has been formed already long ago. An early information is clearly the only way to take some safety measures. In any event, considering the nine indicators developed in GEAB 3, it is now clear for LEAP/E2020 that the crisis is entering its triggering phase. The GlobalEurope Anticipation Bulletin N°3 details all these analyses and points at some tracks of solution in order to help private and public operators get prepared to make proper decisions.
Considering the importance and convergence of the trends confirming the portended systemic crisis, only trends as powerful could reverse the evolution described by LEAP/E2020. Until today, LEAP/E2020 was not able to identify the least of such reverse trends. Contrary to what some may say, « crises happen even when they are not of collective interest » (WWI or the 1929 crack already proved that). The Iran crisis, the Iraq civil war, or the deterioration of US deficits prove that our international leaders have no hand over the events. It is vain to hope that they will in the last minute appear as « deux ex machina » and solve problems that they contributed to develop over the past decades. Lastly, in the event a crisis occurs, and contrary to what happened in the past decades, the Dollar will not be the reserve currency it used to be, due to the fact that the loss of confidence in the US and in their currency (including by the Americans themselves) is precisely one of the components of the new crisis.
_____________
Apart from the analyses detailed in GEAB 3, LEAP/E2020 would like to give two clear advices to the readers of this public communication:
*
during the unfolding of a global systemic crisis, the main strategy to adopt consists in diversifying as much as possible one’s holdings, because given the unpredictability of the unfolding, only a diversification can limit the loss. It is important to bear in mind the following aspect: in a context of general crisis, the aim is no longer to gain more but to avoid losing too much.
*
as regards currencies, LEAP/E2020 noticed that its strategic analyses and advices concerning the Euro were largely read and commented at the highest level of the Eurozone governance system. This reinforces our feeling that Euroland will be in the coming months the only monetary area capable of resisting a Dollar crisis. Decision-makers have grown aware in the proper timing of the measures to take on D-Day.
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