U.S. Dollar Will Begin a Massive Devaluation in Autumn 2011 (Around 30% in a Few Weeks)
For tens of millions of Americans, austerity is here and it's called lasting impoverishment. Therefore, what is going to come into play by Spring 2011 is the shift into official speeches, budgetary policies, and international awareness to the idea that the United States is no longer 'the land of plenty' but 'the land of few.' And beyond the domestic political choices, it is also the discovery of a new limitation for the country: the United States cannot afford a new stimulus. Rather than a multi-decade collapse like the Japanese situation, many decision makers will be tempted by shock therapy ... this same therapy that, with the IMF, the United States recommended to Latin American, Asian and Eastern European countries. This is normally a good reason for the rating agencies, always so quick to see the straw in the eye of most countries in the world, to threaten the United States with a strong downside re-rating if they do not implement a comprehensive austerity plan as quickly as possible. It is really in Spring 2011 that the United States has an appointment with austerity, an appointment that the rest of the world will impose if it is paralyzed politically. Until then, it is likely that the Fed will try a new series of 'unconventional ' measures (a technical term meaning 'desperate attempts') to try and prevent arriving there; because, at this stage, one thing is certain concerning the consequences of the United States entering a large-scale program of austerity: there will be financial and monetary chaos in the markets accustomed for decades to the exact opposite -- that’s to say, U.S. waste; and an internal economic and social shock unparalleled since the 1930s. - Public announcement GEAB N°47, Spring 2011: Welcome to the United States of Austerity: Towards the very serious breakdown of the world economic and financial system, September 16, 2010Widespread anger will collide with the release of the Deficit Commission report set up by President Obama, which will automatically place the issue of deficits at the heart of public debate at the beginning of 2011. The first half of 2011 will dictate that the US economy take an unprecedented dose of austerity, plunging the planet into new financial, monetary, economic and social chaos… There is a very depressing widespread reality, a real trip 'to the heart of darkness,' which is that tens of millions of Americans (nearly 60 million now depend on food stamps) who no longer have a job, no longer have a house, no longer have any savings, are wondering how they will survive in the years to come. The young, retirees, African-Americans, workers, service employees… they constitute this mass of angry citizens who will speak violently next November and plunge Washington into a tragic political impasse. - Public announcement GEAB N°47, Spring 2011: Welcome to the United States of Austerity: Towards the very serious breakdown of the world economic and financial system, September 16, 2010
Global Systemic Crisis: Autumn 2011
US Budget/US Treasury Bonds/US Dollar: The three US crises which will cause the very serious breakdown of the global economic, financial and monetary systemApril 16, 2011
Public Announcement GEAB N°54 - The 15 September 2010, GEAB N°47 issue was headed Spring 2011: Welcome to the United States of Austerity: Towards the very serious breakdown of the world economic and financial system. Yet at the end of summer 2010, most experts believed:
At this stage, LEAP/E2020 can confirm that the next stage of the crisis will really be the "very serious breakdown of the world economic, financial and monetary system" and that this historic failure will occur in autumn 2011. The monetary, financial, economic and geopolitical consequences of this "Very Serious Breakdown" will be of historic proportions and will show the crisis of autumn 2008 for what it really was: a simple detonator.
The crisis in Japan, the Chinese decisions and the debt crisis in Europe will certainly play a role in this historic breakdown. On the other hand we consider that the issue of government debt of countries on Euroland’s periphery is no longer the dominant European risk factor here, but it is the United Kingdom which will find itself in the position of the "sick man of Europe."
The Eurozone has in fact established and keeps improving all the monitoring systems needed to address these problems. Management of the Greek, Portuguese and Irish problems will therefore take place in an organized fashion. That private investors must take a haircut (as anticipated by LEAP/E2020 before summer 2010) does not belong to the category of systemic risks, displeasing the Financial Times, the Wall Street Journal and Wall Street and City experts, trying every three months to rerun the "coup" of the early 2010 Eurozone crisis.
In contrast, the United Kingdom has completely missed its attempt at "preventive budgetary amputation surgery.” In fact, under pressure from the street and particularly more than 400,000 British who roamed the streets of London on March 26, 2011, David Cameron is forced to lower his target for reducing health care costs (a key point of his reforms).
At the same time, the Libyan military adventure has also forced him to rethink his goals for Defense Ministry budget cuts. We already mentioned in the last GEAB issue that the British government’s financing needs continue to rise, reflecting the ineffectiveness of the measures announced whose implementation is proving very disappointing in reality. The only result of the Cameron / Clegg duo policy is currently the relapse of the British economy into recession and the obvious risk of the ruling coalition imploding after the next referendum on electoral reform.
In this issue, our team describes the three key factors that mark out this very serious breakdown of autumn 2011 and its consequences.
Meanwhile, our researchers have begun to anticipate the progression of the Franco-Anglo-American military operation in Libya which we believe is a powerful accelerator of global geopolitical dislocation and that it usefully illuminates some of the current tectonic changes in the relationships between major world powers. In addition to our GEAB $ index, we expand on our recommendations for dealing with the dangerous quarters to come.
Basically, the process that is unfolding before our eyes, of which the US entry into an era of austerity is a simple budgetary expression, is a continuation of the balancing of the 30 trillion of ghost assets which had invaded the global economic and financial system in late 2007. While about half of them had disappeared in 2009, they have been partially resurrected since then due to the volition of the major global central banks and the US Federal Reserve, in particular, and its "QE 1 and 2". Our team considers, therefore, that 20 trillion of these ghost assets will go up in smoke beginning autumn 2011, and very brutally, under the combined impact of the three US mega-crises in accelerated gestation:
Around the historic shock of autumn 2011 which will mark the definitive confirmation of significant trends anticipated by our team in previous GEAB issues, the main asset classes will experience major upheavals requiring the increased vigilance of all players concerned for their investments. In fact, this triple US crisis will mark the true exit from the "world after 1945" which saw the US play the role of Atlas and will, therefore, be marked by many shocks and aftershocks in the quarters which follow.
For example, the dollar may experience short-term effects of strengthening value against the major world currencies (especially if US interest rates rise very quickly following the ending of QE2), even if, six months after that, its 30% loss of value (relative to its current value) is inevitable.
We can, therefore, only repeat the advice that has appeared at the head of our recommendations since the beginning of our work on the crisis: in the context of a global crisis of historic proportions like the one we are experiencing, the only rational objective for investors is not to make more money, but to try to lose as little as possible.
This will be particularly true for the coming quarters where the speculative environment will become highly unpredictable in the short term. This short term unpredictability will be particularly due to the fact that the three US crises that trigger very serious breakdown in the world in autumn are not concurrent. They are very closely correlated but not linearly. And one of them, the budget crisis, is directly dependent on human factors with a big influence on the timing of the event; whilst the other two (whatever those who see the Fed officials as gods or devils think) are now, for the large part, included in the significant trends where US leaders’ actions have become marginal.
- First, that the debate on the US budget deficit would remain a mere subject of theoretical discussion within the Beltway.
- Secondly, that it was unthinkable to imagine the United States engaging in a policy of austerity because it was sufficient for the Fed to continue to print dollars.
At this stage, LEAP/E2020 can confirm that the next stage of the crisis will really be the "very serious breakdown of the world economic, financial and monetary system" and that this historic failure will occur in autumn 2011. The monetary, financial, economic and geopolitical consequences of this "Very Serious Breakdown" will be of historic proportions and will show the crisis of autumn 2008 for what it really was: a simple detonator.
The crisis in Japan, the Chinese decisions and the debt crisis in Europe will certainly play a role in this historic breakdown. On the other hand we consider that the issue of government debt of countries on Euroland’s periphery is no longer the dominant European risk factor here, but it is the United Kingdom which will find itself in the position of the "sick man of Europe."
The Eurozone has in fact established and keeps improving all the monitoring systems needed to address these problems. Management of the Greek, Portuguese and Irish problems will therefore take place in an organized fashion. That private investors must take a haircut (as anticipated by LEAP/E2020 before summer 2010) does not belong to the category of systemic risks, displeasing the Financial Times, the Wall Street Journal and Wall Street and City experts, trying every three months to rerun the "coup" of the early 2010 Eurozone crisis.
In contrast, the United Kingdom has completely missed its attempt at "preventive budgetary amputation surgery.” In fact, under pressure from the street and particularly more than 400,000 British who roamed the streets of London on March 26, 2011, David Cameron is forced to lower his target for reducing health care costs (a key point of his reforms).
At the same time, the Libyan military adventure has also forced him to rethink his goals for Defense Ministry budget cuts. We already mentioned in the last GEAB issue that the British government’s financing needs continue to rise, reflecting the ineffectiveness of the measures announced whose implementation is proving very disappointing in reality. The only result of the Cameron / Clegg duo policy is currently the relapse of the British economy into recession and the obvious risk of the ruling coalition imploding after the next referendum on electoral reform.
In this issue, our team describes the three key factors that mark out this very serious breakdown of autumn 2011 and its consequences.
Meanwhile, our researchers have begun to anticipate the progression of the Franco-Anglo-American military operation in Libya which we believe is a powerful accelerator of global geopolitical dislocation and that it usefully illuminates some of the current tectonic changes in the relationships between major world powers. In addition to our GEAB $ index, we expand on our recommendations for dealing with the dangerous quarters to come.
Basically, the process that is unfolding before our eyes, of which the US entry into an era of austerity is a simple budgetary expression, is a continuation of the balancing of the 30 trillion of ghost assets which had invaded the global economic and financial system in late 2007. While about half of them had disappeared in 2009, they have been partially resurrected since then due to the volition of the major global central banks and the US Federal Reserve, in particular, and its "QE 1 and 2". Our team considers, therefore, that 20 trillion of these ghost assets will go up in smoke beginning autumn 2011, and very brutally, under the combined impact of the three US mega-crises in accelerated gestation:
- The budgetary crisis, or how the United States plunges willingly or by force into this unprecedented austerity and takes whole swathes of the global economy and finance with it
- The crisis in US Treasury bonds, or how the US Federal Reserve reaches the "end of the road" which began in 1913 and must face up to its bankruptcy whatever accounting sleight of hand is chosen
- The US Dollar crisis, or how the jolts in the US currency that will characterize the ending of QE2 in the second quarter of 2011 will be the beginnings of a massive devaluation (around 30% in a few weeks).
 Remittance of funds by US immigrant workers to their countries of origin (first number in local currency at the dollar exchange rate end 2008/second number: the same, at the exchange rate end 2010) - Source: Wall Street Journal, 04/2011 |
Around the historic shock of autumn 2011 which will mark the definitive confirmation of significant trends anticipated by our team in previous GEAB issues, the main asset classes will experience major upheavals requiring the increased vigilance of all players concerned for their investments. In fact, this triple US crisis will mark the true exit from the "world after 1945" which saw the US play the role of Atlas and will, therefore, be marked by many shocks and aftershocks in the quarters which follow.
For example, the dollar may experience short-term effects of strengthening value against the major world currencies (especially if US interest rates rise very quickly following the ending of QE2), even if, six months after that, its 30% loss of value (relative to its current value) is inevitable.
We can, therefore, only repeat the advice that has appeared at the head of our recommendations since the beginning of our work on the crisis: in the context of a global crisis of historic proportions like the one we are experiencing, the only rational objective for investors is not to make more money, but to try to lose as little as possible.
This will be particularly true for the coming quarters where the speculative environment will become highly unpredictable in the short term. This short term unpredictability will be particularly due to the fact that the three US crises that trigger very serious breakdown in the world in autumn are not concurrent. They are very closely correlated but not linearly. And one of them, the budget crisis, is directly dependent on human factors with a big influence on the timing of the event; whilst the other two (whatever those who see the Fed officials as gods or devils think) are now, for the large part, included in the significant trends where US leaders’ actions have become marginal.
The budget crisis, or how the United States plunges willingly or by force into this unprecedented austerity and takes whole swathes of the global economy and finance with it
The numbers can make the head spin: "6 trillion in budget cuts over ten years," said the Republican Paul Ryan, "4 trillion in twelve years" retorted the 2012 candidate Barack Obama, "all this is far from sufficient," bids one of the Tea Party referents, Ron Paul. And anyway, sanctions the IMF, "the United States is not credible when it speaks of cutting its deficits."
This unusually harsh remark from the IMF, traditionally very cautious in its criticism of the United States, is in any case particularly justified in terms of the psychodrama which, for a fistful of tens of billions of dollars, nearly shut down the federal state absent any agreement between the two major parties, a scenario that will, moreover, soon take place again over the federal debt ceiling.
The IMF is only expressing an opinion widely shared by creditors of the United States: if, for a few tens of billions USD in deficit reduction, the US political system reached that degree of paralysis, what will happen when, in the coming months, cuts of several hundred billion dollars a year will be required? Civil war? This is the new California governor Jerry Brown opinion in any case, who believes that the United States is facing a regime crisis identical to that which led to the Civil War.
This unusually harsh remark from the IMF, traditionally very cautious in its criticism of the United States, is in any case particularly justified in terms of the psychodrama which, for a fistful of tens of billions of dollars, nearly shut down the federal state absent any agreement between the two major parties, a scenario that will, moreover, soon take place again over the federal debt ceiling.
The IMF is only expressing an opinion widely shared by creditors of the United States: if, for a few tens of billions USD in deficit reduction, the US political system reached that degree of paralysis, what will happen when, in the coming months, cuts of several hundred billion dollars a year will be required? Civil war? This is the new California governor Jerry Brown opinion in any case, who believes that the United States is facing a regime crisis identical to that which led to the Civil War.
 Public and private sector borrowing (1979 - 2010) (in red: public/in blue: private) - Source: Agorafinancial, 04/2011 |
"Whom the gods would destroy they first make mad", says the ancient Greek proverb.The Washington political scene will increasingly resemble a psychiatric hospital in the coming months, making "the bizarre decision" increasingly likely. If, in order to reassure themselves about the dollar and Treasury bonds, Western experts repeat in turn that the Chinese would be crazy to get rid of these assets which would thus only hasten their fall in value, it’s that they haven’t yet understood that it’s Washington and its political mistakes that can come to the decision that hastens this fall. And October 2012, with its traditional annual budget vote, will be the ideal moment for this Greek tragedy which, according to our team, won’t have a happy ending because this isn’t Hollywood, but really the rest of the world which will write the scenario’s sequel.
Whatever the case, by political choice, by closing down the federal government or by irresistible outside pressures (interest rates, IMF + Euroland + BRIC), it is really in autumn 2011 that the US federal budget will massively shrink for the first time. The continuation of the recession coupled with the ending of QE2 will cause interest rates to rise and thus significantly increase federal debt servicing costs, against a backdrop of falling tax revenues caused by a relapse into a deep recession. Federal insolvency is now just round the corner according to Richard Fisher, president of the Federal Reserve Bank of Dallas.
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