2008: Full global impact phase of the Very Great US Depression !
– Public announcement GEAB N°21 (Januray 16, 2008) –
In the course of 2007, facts however proved that a global systemic crisis was indeed throwing down all the principles the global economy was based upon since 1945; and that, along with the GEAB’s analyses in September 2007 (GEAB N°17), the seven sequences of the impact phase of the global systemic crisis would simultaneously reach climax in the course of the year 2008.
One aspect, and a catalyst, of this global systemic crisis is the United States’ stepping into an unprecedented (1) socio-economic crisis in 2007, hitting hard on households (2) as a result of the housing bubble burst and of their increasing insolvency, soon followed by financial operators’ insolvency, due to the pure and simple evaporation of USD hundreds of billion-worth in assets.
In 2008, in addition to these two types of US players, companies will be hit as are caught in the crossfire between credit crunch and the collapse of housedold consumption, as well as public organisations whose fiscal revenues crumble. From now to this summer in particular, the financial crisis triggered by the US subprime mortgage loans will turn into a much wider-ranging crisis involving the implosion of the Credit Default Swaps (CDS) market. This will represent a now tipping point in the impact phase of the global systemic crisis (see detailed analyses in the rest of this announcement and in the GEAB N°21 – upon subscription).
Asia, Europe and emerging countries in 2008 – Direct but mitigated impact of the Very Great US Depression: Recession, stagflation and Western financial institutions taking control
In fact the Eurozone will not present exciting prospects in the year to come, with a growth rate around 1 percent. But compared to the rest of the world, it will be by far the area least affected by the impact of the crisis. The risk of internal divergence among the economies of the Eurozone are obviously real (and our team often detailed their anticipations on this subject in recent issues of the GEAB), yet the overriding feeling today in the Eurozone is about preserving a currency that seems to protect quite efficiently the Europeans using it from external turmoil.
This situation will require from the ECB and for the Eurogroup to find most efficient means of cooperation, taking into account the expectations of both the public opinion and the various economies. In the last few months, anti-ECB political speeches (Nicolas Sarkozy’s, in particular) became dormant. And, considering that Germany is also about to be affected by the EUR/USD rate (soon climbing above 1.50 and heading towards 1.70, before the end of 2008), all the players of the European monetary and economic game will be ready to move on. According to LEAP/E2020, this will take the form of a 2 to 3 percent increase of maximum acceptable inflation rate by the ECB.
Notes :(1) Or rather ‘with a precedent’ which most experts and specialised media often refer to, and that is the 1929 crisis and the Great Depression that followed in the 1930s. On this subject, the LEAP/E2020 team demonstrated in the previous issues of the GEAB that the present crisis if in fact much more serious that the 1929 crisis.
(2) If anyone still doubts that there is a recession in the US, we suggest he/she complies to the following simple exercise: enter the expression « december sales down; in Google and see the impressive list of companies from all sectors (retail sales, cars, electronic, furnitures,…) whose sales collapsed in December 2007, a month usually very profitable due to the holiday season.
(3) Source: Financial Times, 11/22/2007
(4) Source: European Commission, Economic and financial affairs