CRASH 2: Give credit where it’s due…..

…..and take charge of the aftermath.

In this, the final crunch match between the Eggheads and the Crash, team spirit among the Eggheads is not all it might be. Ben Bernanke looked almost truculent following Christine Lagarde’s man-the-lifeboats speech at Jackson Hole last Saturday, and the boss of the EU’s piggy bank Jean-Claude Trichet said she was “quite wrong” to call his little piglets wobbly. Although she is of course quite right about their fragility, in one mighty leap she has gone from driving the French nation into debt, to complaining about the amount of cash in European banks not being enough to cough up for disgracefully accumulated sovereign debt in the EU. Quietly seething in the Elysees Palace is Nicolas Sarkozy, a man already behind in the polls, and thus not exactly crying out for a collapse in the public finances on his watch.

Trichet doesn’t like Lagarde, and he doesn’t like Frau Merkel much either. But Merkel herself is in a deal of trouble, because a head of steam has been building up in Germany that, as I’ve long suspected, is going to call the next round of bailouts offside – including the one being lined up for Greece – and very probably defeat Merkel in the Bundestag. The Greek people in turn aren’t getting on too well with their ‘government’, which has effectively been neutered by events; and after requesting emergency aid for its banks last week, the Athens Government facilitated the fastest merger in banking history by allowing its second and third biggest institutions to join forces – the better to pile up the sandbags against the coming waves of foreclosure.

So apart from US and French Presidents distracted by re-election, a revolution on the boil in Greece, a constitutional crisis about to sweep Merkel away in Germany, the Italian leader Berlusconi beset by charges of under-age sex and corruption, and at least one major bank already on a drip feed from US FX emergency dollar funding, the Eggheads team is focused and ready to face the challenge ahead.

Yes, well – not really: the Eggheads are Arsenal in this encounter, and Crash 2 a rampant Manchester United. I feel sure that in the various White Houses, Downing Streets, Elysees Palaces and Beijing mausoleums around the globe, only the truly dense people at the top are in the slightest doubt as to the eight-goal rout that is coming. The main task ahead now, for the politicians who facilitated this mess, is one of finding the best things to blame – via which, they hope, any responsibility attaching to them might usefully be shrouded in heavy mists of alleged serendipity.

Last time around, Bush blamed the ease of access to alcohol on Wall Street. Eric Daniels of Lloyds Bank blamed Greenspan, and Gordon Brown blamed Esper & Marlene Hillbilly of The Tree-House Branch, Tennessee, for their unwisely successful $2.3M mortgage application of September 2004. Adam Applegarth of Northern Rock blamed the rates for going up, Hank Paulson blamed Congress for not giving him absolutely all the money in America when he asked for it, and Goldman Sachs blamed Clinton for forcing banks to give black folks mortgages they didn’t deserve.

This time, the Chinese were first out of the blocks, naming and shaming the US as the prime culprit. Washington didn’t have to look very hard before alighting upon S&P, the ratings agency that had downgraded its debt; although some time before this, Obama had fingered the GOP for its audaciously irresponsible attempt to stop him launching a free National Wealth Service during election year. The Tea Party blames Washington because it’s there, but at the moment Greece is in the lead by apportioning equal blame to Goldman Sachs, the ECB, the previous government, the IMF, Moody’s, Fitch, and anyone who was nuts enough in the first place to ever expect them to pay the money back.

Last Saturday was Christine Lagarde’s bid for freedom, and it’s clear she has two targets in mind: the banks for not recapitalising, and the taxpayer for being too mean. Both are incredible as objects of blame, but its never stopped her before, and it certainly won’t now. So it only remains for me to size up what the late starters will do….once even they have spotted the inevitability of le deluge.

The Labour Party will blame the UK Government’s programme of cuts – except for Harriet Harman, who proposes to lump all the guilt onto the EMA scandal, as she’s taken to calling it, and gender inequality. The Guardian will probably blame everything done since May 2010, and toss in a conspiracy theory involving James Murdoch for good measure. George Osborne will blame the EU for not getting a grip, and – if things turn really tough – David Cameron for giving in too much on expenditure cuts. Cameron himself will naturally blame Brown, but single the banks out for special praise and complete absolution.

Angela Merkel will blame lazy latinos outside Germany and electoral agitators inside Germany, prior to finding a Dutch UKIP militant setting fire to the Reichstag, and then declaring a State of Emergency. Sarkozy will blame the Germans for exporting (and exorting) too much, and the British for not stepping up to the negotiating table. President Herman Van Rompuy and President José Manuel Barroso will blame Brussels for wanting two Presidents, and EU citizens for not loving the EU passionately enough. Sarah Palin will blame the Russians, and flouride in the water supply. Putin will just pip Greece at the post by blaming the weather, the Ukraine, the Mafia, South Ossetia, the Chechens, anyone from Georgia, and Boris Nemtsov….assuming he avoids committing suicide by falling off a Moscow tower block before Crash 2 finally gets into its stride.

And finally, what of perhaps the two most influential players on the stage of this third-rate farce – Ben Bernanke and Jean-Claude Trichet? Bizarrely, I’d imagine that Bernanke will blame consumers for deliberately refusing to consume, as they were meant to do in his models….although he will be patronisingly sad, rather than angry, in making this judgement. And Tricky Trichet will blame all 27 EU member States for their insolent disobedience to the dictates of his Central Bank. For they unpardonably sabotaged his one big plan…to retire before any seriously smelly stuff got chucked at the fan.

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What we are about to see is the Search for Sanctuary that always accompanies a screw-up. And out of all the blamestormers, perhaps only one will lay the blame squarely at the door of deregulated banks: Mervyn King, the Governor of the Bank of England. He won’t be entirely right (and he certainly must shoulder at least some of the blame for his dilatory attitude in the boom years) but he will be more right than the rest of those miscreants listed above. As with the BBC, King is a curate’s egg who nevertheless gets far more of a whipped backside than he really deserves: just as the Beeb became anodyne after the Iraq unpleasantness involving dead doctors and dire threats from Alistair Campbell, so too King’s opening observation  – that Northern Rock should be left to fail – was greeted with the sort of pernicious vitriol from Brown and Darling that made a mockery of the BoE’s ‘independence’.

But what of the rest of us? I suspect we will remain as clear as we were three years ago about what has caused us to be back in the cess pit, only deeper than ever. On a planetary canvas, it’s terminally obvious that globalist exporting is not the answer – and globally based banking does little except shove paper around while underwriting megamergers. Export mercantilist mania will one day lead to catastrophic war unless it is reined in. Derivatives threaten the fiscal survival of every nation on Earth. And the never-ending shareholder quest for Bigness kills more jobs with every month that passes.

Equally clear is that a globalist business perspective removes all respect for, and loyalty to, national needs. As Homo sapiens is a pack animal, this too is a very bad idea. Further, national politicians are running scared of business, banking, and media power. We can laugh at their silly strutting, but the erosion of sovereignty is an even worse idea.

At a level more local to Sloggers, an administratively strangled EU has failed miserably on the twin bases of creative entrepreneuralism and wealth creation. The growing suspicion of wannabe superstates per se is based on the same old social anthropology so often ignored by politicians: they are too big and prone to being hijacked by unproductive functionaries. But primarily, the EU will eat itself because it has failed to grasp the concept of a varied Europe creating eclectic businesses and products that the rest of the world might want.

Specifically, the European Union’s crazy disregard for focused investment – and an equally mad commitment to cheap, unsecured credit alongside polemic wealth redistribution – is at a tipping point. Put simply, the EU tried to put unaffordable and undisciplined fantasies into reality. This is by far the factor most likely to infect the US, and thence the world economy as a whole.

I doubt if, in the end, there is any point to blamestorming. There is, however, a lot to be gained from a reasoned post mortem. The results of such an investigation ought to mean an end to globalist, neo-fascist conformity in favour of varietal self sufficiency….invention on a global basis, wherein exports are a bonus other markets can enjoy – rather than the be-all and end-all of everything.

In such a business context, domino-falling investment banks would be a bad dream from the distant past, and the business of financing entrepreneurs or mezzanine concerns would be a far more diverse process. The aim of most nations would be self-sufficiency in everything from food and natural resources to energy. We will never achieve that of course, but in a way, that’s the point: without an ideal to aim at, humanity will always be tempted to languish in a ditch.

Aspiration is the main thing we have lost after 35 years of Friedmanism. Protection of what we have, obsession with the material, and short-termism have replaced the great quest….until we are indeed in a ditch of our own making. We have rewarded lazy shareholders, as opposed to investing in the future. The tiny minority has sought to profit from monopolies, rather than a majority hell-bent on their ideas and labour offering reward for them, and fulfilment for others.

The mutual, varied community will one day replace the Big one-size-fits-all society. When it does, we will all be the better for it. But it won’t just happen: we have to make it happen. Once the Judgement Day has passed, and the blame has been apportioned, it’s up to us to take charge in the community that replaces the society.

The UK bank holiday is over, as are most of Europe’s August vacations. From tomorrow, the debt pantechnicon rolls ever nearer. There will be no place for negative blame in this new future. Instead, a positive learning process must take over. Actually – whether the elite like it or not – cultures usually learn far more from mistakes than from success. If they can no longer do that, then every sensible citizen should desert that culture in search of a better one.

CRASH 2: Time to put your head between your knees….or in your hands

Panic accelerates as markets look beyond ClubMeds to France.

The long-awaiting confluence of nasties seems to be upon us. The process has been ongoing for 48 hours really, but only late this afternoon BST did it begin to gather pace.

The Slog posted three days ago to suggest Gold would be a good move: it’s now at $1675. Yesterday I compared the situation to the timetable inevitability of the First World War. Since then, global indices have fallen a further 2.4%, and since a week last Tuesday, the Dow has dropped nearly 10%. Both the Japanese and the Swiss governments are frantically selling their currencies in a bid to make them less safe and more shark-infested.

There has been some cheer among idiots about the low cost of borrowing for us and the Americans. The grown-ups, however, know only too well that low yields right now reflect realism among lenders: given the utterly crappy outlook for our respective economies, their view is that the best way to ensure getting their money back is to make our debts manageable. Good God: a market sector is learning, I’m getting over-excited – quick, give me some ONS output to read.

There is a glimmer of news for patriots who invest in currencies: you can stop feeling guilty for a while, and pile into Sterling while making money too. Now the Pound has hit 1.15 euro equivalent, it has challenged a psychological market level, and should keep improving. It will be 3 steps up, two steps back – but it will be up. It may be purely a question of being less of a basket case than the eurozone, but it’s better than nothing.

Otherwise, the news is dreadful, and the epidemiology of fear is spreading like chicken pox on Tristan da Cunha.

With EU economies 4 and 5 in trouble, some investors are becoming jittery about the French finances. France is Europe’s second biggest economy, but spreads between their bonds and German bunds widened dramatically during the day. Without a huge expansion of the EU’s 440 billion euro bailout fund, using this to prop up Italy in the short term (and Spain later) will turn the screws on France’s fiscal situation, and almost certainly raise  its yields further.

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What we are seeing here is the end of Act Two in the Globalist Players production of The Tower of Babel. In this part of the play, the builders of the hubris tower are losing the ability to understand (or even listen to) each other. The many tongues quickly turn into forked tongues, as the strongest in the EU vie to survive, the weakest revolt, and the US is torn between helping for purely business reasons, or pretending not to hear the cries of ‘Help!’ for purely fiscal reasons. We see two tiers of safety emerge. In the first are genuine safe havens like precious metals alongside previously rock-solid currencies. In the second are ports of convenience (the UK, US and Japan). Being an odd hybrid, the Chinese Yuan is at first ignored.

German bonds and Swiss currency get overdemanded, playing havoc with their neighbours…and their exports. The neighbours go under one by one, collapsing the eurobanks and US insurance sector. Gold rises above $5000. Gold miner shares go through the roof, but other stocks collapse in panic…probably too quickly for a US Fed QE3 to be even organised, let alone have any effect. The second tier is seen to be no kind of safety at all, and the Beijing politburo panics as a newly-floated Yuan begins to overtake the value of the US Dollar.

Now the G20 meets as all holidays are cancelled. It talks, it debates, it goes round in circles. Gold is at $8000. The speed of panic overtakes any possible joint action: the banking system goes into meltdown. Sovereign defaults occur on a daily basis, bank collapses are almost hourly.

And then, The Interval. A pause for reflection in the bar, and further debate: what will happen in Act Three? Does anyone know if there’s an Act Four? Have we thought about a train home if there is one?

I have no idea what will happen in Act Three. I know what I would like to happen: the rejection of free-market economics and command economy economics, and a flourishing of rich, new economic thought – necessity as the mother of invention and all that. Above all, I’d like to see the abandonment of unbridled consumption and unsafe credit as the drivers of human commercial and community life. I’d like to see banks so regulated, they daren’t so much as fart without the say-so of their watchdogs: but the last thing I want is for their watchdogs to have anything at all to do with government.

I think the developing World will suffer a setback. I think African famine will continue – and more and more blame for these will be attached to global economic disaster – both dishonestly and unwisely. But most of us will suffer little more than a year or five of anxiety. Probably, we will learn that a lot of the crap we suffered before simply isn’t worth it. Very probably, we will sweep away most of the political practices we currently take for granted.

But most vitally, I hope to finally lay globalist bollocks to rest in a lead-lined casket of a similar formulation to that reserved for Newscorp. I want to see a world finally emerge in Act Four (and yes, there has to be an Act Four) in which there are neither siege economies nor mad mercantilist trade wars – but rather, nationalities seeking pride in self-sufficiency, and even greater pride in the appeal of their traditional products elsewhere in the world.

This would mean the end of One Size Fits All megalomania. And in reality, until Homo sapiens evolves properly, we will never get that. Which is why, inevitably there will be Babel II: Return of the Maniacs.

If you found this useful, you might like to see the full set at Crash 2.

 

CRASH 2: Oil, stock markets dive, Eurozone growth negative, Greece warned on black hole

US, Chinese and UK bad news causes Vix gauge spike

The FTSE is having a bad day, and the Dow has opened to an even steeper rate of decline. As an opening shot to give OPEC fair warning that trying to ransom recovery prospects will get them nowhere, the International Energy Agency agreed to release 60m barrels of oil in the coming month to offset the loss of 1.5m barrels a day production of high quality oil from Libya.

Prime mover in the IEA is of course the US, and this will give Obama a period of time during which UK petrol consumers can feel a price decrease. But politics aside, there is no way the Agency would’ve released these strategic reserves if it saw a world recovery coming. The fact is, the outlook remains dreadful: purchasing managers’ indices for the eurozone plunged during June, indicating  the slowest pace in almost two years. The deceleration was especially strong in manufacturing.

Meanwhile, experts from the European Union, International Monetary Fund and European Central Bank – ‘the Greek Troika’ – have identified a further financing gap of €5.5bn in the four-year programme of fiscal and structural reforms. As we saw last Sunday evening, the IMF (aka Geithner) and the EU (aka Merkel) think they’re pulling a clever stroke here: with a new and finacially inexperienced kid on the block, this is a deliberate intensification of pressure on Angelo Venizelos to make specific commitments on new targets not as minutely quantified as in previous doucmentation. Too clever by half would be my reading.

In the States yesterday, Bernanke kept up with Zirp rates, and offered no sign at all of QE3. He called US growth figures ‘disappointing’, and his view was confirmed by stagnant job creation figures this morning.

In London, Mervyn King told the Evening Standard that rates would be held at Zirp “probably until July 2012″. I think that is a fantasy personally, but it looks like the Osborne MPC appointee from Goldman Sachs is doing as he’s told.

And in China, near-stalling of factory output reflects the tougher stance being taken by Beijing to control economic overheating….but confirms the slowdown there.

This is what the robotic observers of economic and bourse data call ‘a reining in of risk’.Put like that, it sounds like a terrific idea – what a shame we didn’t do it in 2004. But in 2011, it is a precursor of bad stuff to come.

Without being too simplistic, cooling down is a good thing for the Asian tigers, and a death sentence for every Western sovereign debtor.

It means that falling output (and thus even less money to pay off debt) makes things worse for Greece, Ireland, Portugal, and Spain. It means that in the US, either taxpayers cough up more to maintain national debt debt repayment, or Congress has to substantially raise the debt ceiling. With consumption falling and an election coming, you can see which way that cookie is going to crumble. And it means that for the banks in the eurozone, they have a rising wave of probable defaults to face….and the longer the defaults are delayed, the bigger and more destructive they will be.

Push is at last coming to shove: this is Crash 2 unfolding before our eyes. And the rising anxiety isn’t being helped by a breakdown in Washington talks on the US budget ceiling.The Vix index, known as Wall Street‘s fear gauge, has spiked 14%, and is back above 21. As I write, the FTSE global index is down 2%. The FTSE 100 has now fallen 6.8% since February….but today’s FTSE all index loss alone was 1.7%.

Most human beings think in a linear fashion; indices of acceleration, and acceleration of collapse becoming exponential, are concepts beyond most people. But it never fails to come true. Stagnation is running alongside inflation delivered by currency devaluation, debts are rising hourly, and the parochial political considerations are getting in the way.

You read it here first: as the debt forgiveness window closes, smashing our way through it is going to get increasingly destructive and expensive. We are running on empty….and running oout of time.

FTSE DROPS BELOW 5000

Spain Cajasur collapse is dangerous catalyst
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Confidence in Eurozone plummets
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North Korean noises a further blow

With Shanghai down 2% and the Nikkei plunging a further 3% overnight, the FTSE this morning fell into the Volatility Index (VIX) crisis zone at 4947.

The Euro has also continued its fall against major currencies. The single currency dropped to within one yen of its lowest level in more than eight years after the International Monetary Fund urged Spain to do more to overhaul its ailing banks. Specifically, it is clear that Spain’s property-lender caja sector insolvency epidemic is spreading.

This is an extract from the IMF Spain warning issued yesterday:

‘“Spain’s economy needs far-reaching and comprehensive reforms. The challenges are severe: a dysfunctional labor market, the deflating property bubble, a large fiscal deficit, heavy private sector and external indebtedness, anemic productivity growth, weak competitiveness, and a banking sector with pockets of weakness.’

Stern stuff, rounded off at the end of the IMF summary with ‘time is of the essence’.

Indeed it is, but time is what too many EU members no longer have.

The FTSE 5000 breach is of both historical and psychological importance: if the drop continues during today and leaves 5000 too far behind, The Slog believes we can safely see this as the start of Crash II. And whether it realises this or not, North Korea’s bizarre belligerence will exacerbate problems in the Asian markets.