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As we get closer to the end of 2012 we start to look
forward to 2013 and beyond. Hopes and dreams must always be tempered by the
stark spotlight of today’s realities. Nothing can happen unless it is
based on today’s present world structures, events and leaders in
politics, and money. The first major point we have to recognize is the
structures we see around us, within which everything is bound together,
together with the current leaders and their will for the future –these
things will shape the years ahead.
Much
as we might hunger for reform in so many areas, we must be pragmatic in
looking forward. The world is not pure –far from it— so it is
realistic to look at what is here today that will shape tomorrow. Looking at
the future through these leader’s eyes gives us a clear perspective.
Underlying
the developed world society is the state of the family, which underpins the
state of the nation. This in turn describes the state of national and global
cohesion within world structures. For instance, by contrasting the progress
of China’s economy with that of the developed world, we get a focused
picture of the economic and monetary capabilities of civilization in the two
blocs.
If
you doubt what we have said, look back to the start of the credit crunch in
2007 and see that it has been over five years since it began. The problems
that exploded on us then –have they been resolved? Has the political
system been reformed? Is the developed world showing a clear direction
forward or is it a mélange of contradicting power bases, in dispute
with one another. Has the financial system been reformed? Or is it reliant on
a series of rescue operations attempting to hold together structures that
have failed so far to provide what we are looking for in our future? Are the
fundamental structures of government and finance working cohesively to
provide solutions that will lead the developed world to a growing future? It
does seem that political parties keep promising a solution to our problems
(with little to no details) and manage to avoid letting us see that the
problems we face are a consequence of past actions by the same dominant
structures.
Do
we have a strong workable monetary system to take us into the future? No we
don’t. Are the powerless ordinary people more confident in their
future? No they are not. What we see is a growing discontent among the bulk
of mankind that their future is so uncertain. That discontent breeds
instability and uncertainty, a state that has not lessened in the last seven
years. As the developed world points down to more economic underperformance,
this rising tide of discontent threatens to worsen substantially. It is
against this backdrop that we look at the future.
United States
We
still have the political gridlock that has rendered the leaders of the U.S.
powerless to lead, let alone reform over the last few years. No attempts to
really promote growth and jobs have come out of Washington. The emphasis in
the political and financial world has been to save the buckling banking and
monetary system from spiralling down into a
Depression. Hats off to the Fed because they have succeeded in doing that,
but little more! The hopes inside the U.S. have been to see no further
decline and to hope that the tenacity and resolve of the consumer will lift
the U.S. out of its doldrums. Perhaps one should ask, “Are politicians
qualified to provide economic growth or simply lessen the burden government
puts on the productive facet of a nation?” The last five years
–when growth has been so badly needed—has not seen that happen.
What convinces us that next year thing will change for the better? And
reality demands specifics, not just vague, hopeful generalities.
The
use of quantitative easing has boosted the money supply enormously and will
keep on doing so until growth takes off, growth that is not just
well-established but sustainable. If this does not happen and growth remains
below inflation and population growth, then the bloated money supply will
turn back on the system and create monetary inflation while the economy is
shrinking. Combine that with shrinking confidence at that time and the
mercurial impact of the two factors joining each other, and this may well go
beyond a simple recession and lead to a massive drop in the dollar’s
buying power. It could easily then swing out of control.
A
failure to resolve the ‘debt-ceiling’ crisis and the
‘fiscal cliff’ could ignite that state of affairs. So we enter
2013 with that economic backdrop. Political gridlock, which will last until
the election of Congress and the House of Representatives, will continue to
render government inadequate to handle the current crises. The consequences
could be dire. It’s well-known that the leading institutions of the
U.S. are going through planning for a possible dollar collapse, the possible
scenario of having to withdraw military personnel from outside the U.S., and
the pay of government employees being insufficient to provide for their
families. These are very real scenarios for the future that must be addressed
ahead of them happening.
So
2013 appears to promise more of the same as the last five years in the U.S.
and its economy except that conditions have become more fragile. The economy
appears to have a small element of growth and by way of hope, does not seem
to be headed into a slump. This is contingent on the politicians not mucking
it up at the start of 2013.
But
there’s a major change coming in the next four years within the
economic structure of the States that could may help
it survive and maybe even prosper despite these handicaps. This will be
discussed in part II.
Eurozone
The
inadequacy of the political structure of the Eurozone has been evident for
all to see in the last few years when the ‘credit crunch’ morphed
into the Eurozone Sovereign Debt crisis. It has been with us for far longer
than anybody expected and has succeeded in highlighting the weakness of the
bloc’s diverse national bases. The leadership performance of the
Eurozone’s politicians has been underwhelming and continues to place
partisan interests over those of the E.U. We see no reason why that should
change. But the reinforcing of that failure in 2013 and beyond is against a
disenchanted population that is increasingly inclined to social unrest as
their financial and employment situation worsens.
We
believe that the recession now underway in the Eurozone will feed on itself
and worsen in 2013.
The
situation in the Mediterranean nations of the south side of the Eurozone
seems to be worsening and removing hope in the process:
· We expect
Greece will leave the Eurozone in the next 12 months.
· The
weaknesses being seen in Spain are not going away and will worsen in line
with the ongoing recession there too. Spain is expected to find requests for
a further bailout irresistible.
· Italy is
beginning to spiral down to potentially need help too. This would bring the
entire E.U. into question.
Once
this happens the contagion effect will worsen for other members, including
Germany, which relies on the Eurozone for 40% of its exports.
How
will the euro fare under these conditions? Undoubtedly it will fare poorly.
As a currency passing its twelfth year in existence, never has it looked more
tenuous as it does now.
Are
the Eurozone’s leaders up to the task of turning the Eurozone economies
around? A look at their performance over the last few years does not point to
this. Expect that as the recession bites, the value of the euro will decline
and what faces the U.S. will happen in the Eurozone, only to a greater
degree.
But
there’s a major change coming in the next five to ten years within the
economic structure of the Eurozone that could well let it survive and prosper
despite these handicaps. This will be discussed in Part II.
Asia/China & the Arrival of the
Global Yuan
The
controlled nature of China and its people’s love of regimentation and
cooperation has been the prime cause of China’s rapid development. Its
reliance on cheap labor to date developed not only its export markets but its
own expertise in all facets of economic life. The target of double digit
growth remains plausible there, but the threat of social unrest at the uneven
distribution of wealth as it develops is a worry to the government. This is
particularly true when the financial playing fields were relatively flat two
decades ago. Its population of 1.3 billion people in itself is a huge number.
Even if 1 billion people do well out of its growth, then that leave 300
million still waiting for an exit from poverty. This is the same as the
population of the entire U.S.
But
even China must see its economy reach a self-sustainable, internalized
dependency level, before it can be confident of its future. To achieve that
it has to become less reliant on its export markets and outside investments,
unless they support the needs of its structure. The thought that it will
contribute to the developed world’s growth is somewhat fatuous when we
see it manufacturing goods cheaper, but of the same quality and slowly
removing its reliance on imported goods, except of a basic nature. Given
time, it will be manufacturing everything as well as and cheaper than the
developed world can. This makes the shift of wealth from the West to the East
a long-term facet of the global economy.
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