After the halcyon giddiness of the New Year and bubbly financial markets that were extending their sharp, “easy-money” manipulated rise (since September of 2010), a pall has cast its shadow over capital markets around the world. Things are not going as well as policymakers would like. Nor has the widespread investor optimism been vindicated. Why? The Global Financial Crisis (GFC) continues. We may seem to be fixated on this topic of the GFC … apparently not being able to rid our imprinted minds of this horrendous shock to the developed nations of the world. And, it is true, that very few any longer comment on GFC-related issues, believing that it is a subject of the past. Web searches for the words economic “recovery” far exceed those for “GFC” or “crisis?
It is a misleading perspective. How so? Firstly, the causes of the GFC have not yet been rectified … let alone agreed upon by policymakers. Secondly, three years later, underlying conditions for the world’s commercial systems are now even worse than before, their vulnerability to further outbreaks of crisis heightened. Of course, this is not the popular nor prevalent perception. But, this would not be a surprise. Why? Governments and transnational organizations have simply transformed the original form of the crisis—namely, collapsing real estate values, insolvent banks, overindebtedness in the private sector, and the subsequent global demand shock— into another temporary one. The latter now takes the form of massive public overindebtedness (government debt), unsustainable public budget deficits and over-inflated financial markets. These are conditions that cannot continue indefinitely. That means it must stop. But at what point?
{pub}To read this entire article, please register and it will be opened up to you{/pub} {reg}Already, the consequences of post-GFC actions are clearly evident and clear to see. For instance, much of the European banking system and the European Central Bank itself is technically insolvent due to the collapse of Greek and Portuguese bond markets. We will repeat this: Based on current market values, these financial institutions are now insolvent. But why have world stock and bond markets hardly tremored? Other blatantly bad news cannot be denied … though it may be ignored. In the U.S., a second dip in residential real estate values is now confirmed (i.e. levels falling to new GFC lows) and the economy appears headed into another recession. In Japan, the fall-out from the earthquake earlier this year is much worse that many had expected. Everywhere one looks, unsustainable developments are underway. It is dry tinder vulnerable to a spark. All that is required is a catalyst to set off the next fear-swept fire storm. But what could this be? This is difficult to predict as it could be anything.
For now, the fire-retardant foam of complacency has muffled more serious responses. Most people—whether financial professionals or John Q. Public on Main Street— are all complacently demur about it all. Why? They believe that governments can again step in and defer or patch over the problems for a time longer. Hasn’t this been the case to date? Yes, for this post-war era, that has been the case to this point. However, that was not so for other epochs and eras that all did come to an end. We must therefore concern ourselves with the question of the next end … the next full deflationary bust as has ultimately happened to all previous societies.
As such, the world’s money managers, policymakers and corporate decision-makers face an environment of brinkmanship. Can one more extension be engineered to the current state of affairs? Is there more money to be made before the final crippling crisis occurs?
Most will answer this question with an optimistic response, but only because they see no other acceptable option. The attitude is that if the “economic Good Ship Guppy” is going to hit the stormy seas and sink, you might as well live to the maximum right to the end. There is little to be gained sitting out the final party by crying “wolf” as one cannot really know exactly when the final doom strikes … when the hand finally writes on the wall “Mene, mene, tekel, upharshim” (Daniel 5:25). To wit, there have been people predicting financial busts for decades. In the meantime, financial interests have been resourceful and expertly creative in extending unsustainable trends to ever more extremes.
The prevalent viewpoint therefore being popularly forwarded for public consumption today is that of the optimist. No matter how dire the ultimate outcome may be “bullishness,” complacency and false bravado are promoted. As it is, some policymakers (here, we think of the central bankers) who throw up their hands, even claim that “bubbles” cannot be discerned ahead of time. They maintain that it is only after the busts have occurred that one can be certain that an unsustainable bubble had existed before hand. This is abdication of both common sense and responsibility, as all busts are preceded by asset bubbles of some type.
Even worse is the fact that governments themselves, using public taxpayers money and future obligations to pay, are actively engaged in the “confidence games” of “pump and dump.” This term harks from the stock-price manipulating schemes where the “inside” promoters “pump” the stock through fictitious buying or over-hyped promotion. Then once the stock price has risen, the promoters then sell their shares at a profit. Subsequently abandoned, the share price collapses. The only difference in the case of the governments bailing out certain companies by buying their shares (ramping them up), is that the taxpayer does not end up making a profit.
Whom to believe? We often quote this comment from John Maynard Keynes on the financial excesses of Wall Street back in the 1920s. “Even in such a time of madness as the late twenties, a great many men in Wall Street remained quite sane. But they also remained very quiet. The sense of responsibility in the financial community for the community as a whole is not small. It is nearly nil.” In this writer’s opinion, this comment remains apt as ever.
Indeed, 95% and more of financial market opinions are likely to be misleading as are the many official statements made by policymakers. It is the objective of the former to confuse and hoodwink in favour of the vested interest; the latter’s to sooth and assure the masses, even if falsely. “The global economic recovery is proceeding broadly as expected” said the head of the Bank of Canada recently. That’s a typical comment, a tactic not only repeated countless times by such similar officials, but also dutifully reported by the media.
However, not everyone is fooled. There are some experts out there in the world—competitive financial matadors and gladiators of the brutal global money coliseum—that have the freedom to tell it like it is. While they may all not articulate their views in terms of “academic theory,” their experienced and expert senses are a reliable alert. Recently, for instance, said Carl Icahn, the multi-billionaire raider: “I do think that there could be another major problem. Now, will it happen next week, next year, I don’t know and certainly nobody knows, but I don’t think that the system is working properly.”
There are a considerable number of other experts sensing that more — and greater—crises lie ahead. And some of them are indeed expressing their concerns. However, their message is unpopular and drowned out by the cacophony of hopeful hucksters.
Yet, whom to blame? Certainly, not the financial industry (tongue in cheek).. Says Carl Icahn further: “[…] you can’t really blame the Wall Street guys. You can’t blame a tiger. If you take a fierce man-eating tiger and put him in with a lot of sheep, you can’t blame the tiger for eating the sheep. And that’s the nature of the tiger. And that’s the nature of Wall Street. I’m not saying they’re bad but that’s their nature, and the government should regulate finance.”
Surveying the world, it is not difficult to identify trends that are deforming financial systems, economic fairness, and undermining the long-term sustainability of the economic conditions of both nations and households. Of course, one must pursue a thorough discipline of studying the data. We must not forget that we are, quite simply, dealing with societies and systems that are innately “human.” These therefore represent the collective actions, wants, needs, lusts of the natural human. This is especially so in the case of “free market” financial systems which also serve to add a measure of anonymity and disconnection from accountability. Therefore, the ill side-effects of a world collectively driven by a desire for wealth and money, will ultimately always end in sudden disasters and busts. The current GFC is not over. The true reality of the current outlook has yet to be fully recognized.
By Wilfred J. Hahn
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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 country’s largest global investment operation, his writings focus on the endtime 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 true riches in an age of deception and trouble, looks further into the future.
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