The expression “disaster economics” has recently been popularized. We
think it is an appropriate term for the times. A slow moving “economic
disaster” has been working its way across the globe assuming different
phases and symptoms. It has a long way to go until all the misaligned
imbalances in the world are finally settled. The current trends that we are
witnessing are part of an ending on a number of levels. It is most certainly
true that the great halcyon era of the post-World War II period of
prosperity has come to an end. Almost all the trends and developments that
underpinned this era are no longer in force.
Economists are offering a wild array of causes, couching their opinions
in heavily technical language. One that is more cogent than many is by
Daniel Alpert, writing on Roubini.com: The “Four Factors”—summarized as
follows: (1) exogenous oversupply relative to global demand, (2) classic
Fisher-described debt deflation, (3) excess technological productivity
relative to the availability of global labor, and (4) inter-generational
demographic challenges.” Does that make sense? Most will not want to answer,
at best thinking this statement somewhat foggy due to the technical terms
If we were to be limited to four candidates, they would be as follows:
1. A radical change in moral values, which impacts the workings of money
as much as it does any other conduct.
2. A massive slow-down in population growth, particularly so following a
period of rapid acceleration (1900 to 1950 or so).
3. A continuing centralization of
wealth, with its handmaiden over-indebtedness.
4. Immoral monetary policies,
promoting all types of economic and financial bubbles.
Of course, a detailed list of additional factors could be mentioned,
including the rapid advance of globalization, the late and sudden rise of
the manufacturing and consumption capabilities of populous countries such as
China and India and a host more.
In the meantime, what about Europe? Will Europe ever produce a truly
unified association of countries? Will it include all current European Union
(EU) nations … or a smaller subset … or several subsets … or a powerful
association of the top ten? Countless theories abound.
There have been numerous skeptics and very few commentators have
predicted EU success. In fact, this seems to be the case today more than
ever before─given the painful economic and financial tremors that are
presently pounding Europe.
Foundationally, the current economic problems stem from there being
different cultures and philosophies within the membership of the Euro zone.
One group allowed the size of their governments to swell, remaining
unconcerned about their large trade-deficits and rising debt-levels. These
debts became large and eventually unsupportable. A somewhat opposite
mentality gave rise to competitive manufacturing and high exports and
eventually, therefore, large exposure to the credit of the countries to
which they were shipping their products. However, to allow these trends to
reach irreparable extremes requires an enabler of such “fair-weather”
behavior … namely, the lender. This is where countries such as Germany have
fault though they may be prodigious exporters.
The bottom line is that it has required two-basic character types to
cause this intractable tangle that is now the Euro zone. While European
policymakers may be inclined to treat the surface lesions, these underlying
differences are still being left untreated. However, Europe has already
traveled a long way down the unification route. There are only a few key
steps left to take─these being most disagreeable to those nations not
willing to forfeit sovereign independence.
Remember that the unified Europe project was built on the strategy of the
“pocket book attack.” Observing global financial markets these past decades,
we have witnessed this principle at work repeatedly. Voters are inclined to
vote with their pocketbook. The original architects of the European Union
and the common euro-currency knew this at the start. It was well anticipated
that individual countries and people would not give up their sovereignty or
freedoms willingly and that only financial crisis could break through such
societal inertia. Without crises, there will not be a unified Europe.
Therefore, the key question has always been this: How much crisis and
blood in the streets does it require to reach common resolutions and
solutions to whatever issue is eroding financial and economic confidence in
Europe? The same question beckons now.
Yet, there are other realities that shed some perspective on the
manageability of the problems. Were EU member countries today to agree to
common fiscal controls and a common bank regulator, it would represent an
economic bloc with financial underpinnings that would outshine those of the
United States. Europe’s government debt would not be as large (relative to
the size of its economy) and its combined budget deficit would be
approximately half that of the United States. This perspective also shows
that the U.S. will again have its day back in the doghouse … someday.
Turning to the world scene, quite frankly, there are
so many unprecedented developments and unstoppable devolutions in the world
of finance, economics and geo-politics. It is remarkable how quiet and
docile most people are. Of course, there is no lack of people who promote
false hopes, but the reality is that more financial collisions are
unavoidable. In what order will they occur? What country will be next
suffering a collapse in confidence? As of this point, countries such as
Greece, Spain, Italy and France (yes, even France─the second largest nation
in the Euro zone) are unavoidably succumbing to the “debt trap.” America,
too, is presently heading to the same outcome … provided that it does not
change course first. For the time being, it is being protected, so to
speak─by the histrionic financial fireworks in Europe.
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About the Author:
Wilfred J. Hahn is a global economist/strategist.
Formerly a top-ranked global analyst, research director for a major Wall
Street investment bank, and head of Canada’s largest global investment
operation. His writings focus on the end time roles of money, economics and
globalization. He has been quoted around the world and his writings
reproduced in numerous other publications and languages. His 2002 book,
The Endtime Money Snare: How to Live Free, accurately anticipated
and prepared its readers for the global financial crisis. His newest book,
Global Financial Apocalypse Prophesied: Preserving the True Riches in an
Age of Deception and Trouble, looks further into the future.