By Dinen P Maharaj
One of the last straws to break the proverbial camel’s back and precipitate the 30’s depression after the feasting 20’s, was protectionism. Ironically policies adopted to protect and clot the bleeding ended up being lethal doses of aspirin causing a global hemorrhage that would free flow for a decade. Ironically further still, it took a global war where millions lost their lives to fribullate an economic heartbeat, born from patriotism, to sustain the livelihoods of those that survived.
Fast forward 70 years and we find ourselves on the precipitance of the exact same scenario, history truly repeats itself; or that’s what I believe will occur. Apart from death and taxes, one certainty we can always rely on is the blatant stupidity of the political elite that is as unshakeable as gravity itself. My crystal ball which as most readers of these meanderings will attest to, is very reliable and it now tells me our brilliant economic and political leaders are going to embark on a path that can be distinctly divided into 2 phases.
Phase 1 is what I would affectionately term “Love thy neighbour and taking one for the team (ask Iceland)”. Herein we have all our leaders speak in unison and pledge their undying support to one another and to work as comrades in arms together pushing back the ever growing tentacles of a global depression. During this phase central banks and finance ministries the world over will work as one, in a state of complete harmony with everyone toeing the line and even utterances being welled planned, sanctioned and executed. On a fiscal front, the depressionary octopus will face combined might of every central bank cannon, blasting bags of fiat currency from every corner of the earth. While “shock and awe campaign” continues with this massive global aerial strike, strategically positioned infantry in the form of global investment banks (JPM et al) will manage hyperinflationary consequences (gold) in the derivatives market, hence silencing any alarms while the other battalion of infantry namely, the financial media, will continually bombard the airwaves with endless happy faced presenters singing Yazoo’s hit track “The only way is up”. This phase is well underway first at Davos and now at the G7 meetings. The canary in mine, in this case gold, is however growing increasingly verbose in his rendition of Chris Rea’s “Road to Hell”. Furthermore Obama’s honeymoon can best be described as a severe bout of premature ejaculation. as his much anticipated stimulus bills, after making a Viagra induced debut on the Dow a few weeks back, seems doomed to a limp trot to obscurity if recent market action is anything to go by. How long this current phase lasts is anyone’s guess, not even my trusty crystal ball knows the answer. What it does know however, is that phase will not work and catapult us into a new Aquarian age….it is doomed to failure by virtue of it’s flawed logic ie. You cannot douse a fire fueled by excesses by adding more excesses. We will know the end of phase one only when the happy pills currently being dished out in the form of various bills and plans fail to even fleetingly holdup markets for literally a microsecond. This people, will usher in the dawn of phase 2 which I suspect will be much sooner then even I suspect.
I eloquently entitle phase 2 “Every man for himself and @#$% the rest”. This is when the real action will begin. Despite a globally correlated effort by the ruling elite to bandage the body of the global economy, the blood loss has now saturated the bandage and the body is going into shock. This is when politicians the world over will abandon the global love boat in order to save their respective hides where it matters…..back home. This phase will be characterized by the introduction of a wide range of domestic policies drafted to close borders, and put in air filtration systems to keep out the global depressionary rot from further infecting their respective capitals. This will represent a complete reversal of policies that help build the first homogenous global economy experienced during the last twenty years, leading to its complete breakdown. How and when this phase ends, I do not know as the variables especially the social backlash are just too complex to contemplate. This scenario however does explain an issue that has turned logic on its head and perplexed me for the last few months….the spectacular rise of the dollar. If the US represents the bulk of a combined global economy, just imagine its stature when all countries stand only by themselves. Furthermore the desperate times that characterize this phase, means that people and countries do increasingly desperate things to survive. Hence having a gigantic infallible military during such times will be worth its weight in gold. Could the really smart people see what ordinary me is and buying the dollar…afterall, better the devil you know than the one you don’t. This will also go someway in explaining the euros dismal performance of late. I don’t buy the economic stories currently being punted for its demise…I think they are fundamentally political rather than economic. If this phase does come to pass, do you honestly believe France and Germany are going continue supporting a currency that in effect is supporting all of their poorer eastern and meditterrean neighbours. Historically there is no love lost between this collection of usual suspects, most of whom were slaughtering one another a mere 200 years ago. I think the euro is doomed.
Anyone can criticize as I am now and this essay will be like hundreds of others written by permabears on a daily basis quoting gluttony of gloomy economic figures. But I do offer a solution, it’s not pretty and promises much initial pain and turmoil and it will be along these lines. Thanks to the internet and various such advances we currently take for granted…the world and society at large is a vastly different place from that a mere 25 years ago. Our cultures, values and aspirations are to a large degree common and intertwined. Firstly I would let all the weak companies, currencies, etc…..die. If this was done years ago instead of propping them up thanks to Greenspan’s easy money, this would be a much easier task now. Recessions and depression are vital to long term world economic health because it purges the weak before they get infectious, unfortunately they are harmful to political careers, hence their artificial levitation of late. Secondly I will open up the doors of Europe and the US to highly qualified people from anywhere on the planet. These professionals and businessman will mop up sub primes properties, add intellectual value to corporates and provide much needed jobs via start up businesses. Thirdly I will revert all currencies to the gold standard to ensure that excesses never occur unabated in the system again
So there you have it, Dinen’s global solution….now go and give it to the powers that be so that a difference can be made before it’s too late!
Dinen P Maharaj
17 February 2009