Days of Discontent : Trends Issue Transition points in the Global Financial Crisis
Originally published August 6 2011
By now, the fall of 2008 seems a distant memory, or perhaps better thought of as a bad dream. The ‘world financial crisis’, ‘the great recession’, the ‘banking collapse of 2008′, ‘the stock market collapse’; there were many names for what is still happening today. The trend is large and global and still unfolding in all its unvarnished details. At certain places along the way, somewhat predictable transition points occur. This trend had been building up steam over the years, and was run full tilt after the events of 9/11 settled, under the Bush Administration. No one wants to lose the election because of a bad economy. The wealth it created from the dynamics, became an addiction for the players that were benefiting, who turned a blind eye. This included everyone from the subprime homeowners who must have had some idea that this was not something they really could sustain, to the CEO’s of major banks who could easily see the writing on the wall. When it became apparent to the major players involved that the bubble was about to burst, the focus shifted to managing this event for the best possible outcome. By 2007 the housing market had turned in the USA. M. Panzner releases his book ‘Financial Armageddon…’ in 2007. By the spring of 2008 Fannie May and Freddie Mac had been considered for nationalization, according to rumours online. There were signs of stress. Bear Stearns failed. By June of 2008 the ‘Hindenburg Omen’ had happened. R.B.S. and others were telling their clients to get out of the stock market. The election was starting to loom large on the horizon. Everything triggered at an opportune moment, interestingly enough. Some media reported the line that ‘no one saw it coming’.
A stock market bubble nears the bursting point by an election, bursts, sending shock waves throughout the global banking system, much of it already in crisis mode. Everything is thrown into a panic mode. Shortly after companies living on extended leverage to maximize profit and compete globally, are out of easy access to cash and fail or have massive layoffs. Much later, the second wave in the monthly mortgage reset charts starts coinciding with the political footballing of debt ceilings and uncertainty, and a political union that never worked out the details of monetary union is unable to deal with a partially submersed balloon of debt. When you look back at it, one can see why things happened the way they did, at the time they did. Looking at the graphs below, one can see the second wave peak being pushed down the road.
Macro-trends are so large they awash all, in their wake. Often it is like trying to stop the tide from coming in, you know it is approaching, but what to do. Our analysis of them let us try to minimize the severity, and reshape their path somewhat as they unfold. Being aware of them helps us adjust to our future needs, and hopefully find the time to react accordingly. The further we can see in the future of macro-trends, especially the critical trends and transition points, the more time we will have to react. Hopefully if we know, we can act in the best interests of society as a whole. Unfortunately the bulk of trend watching, which is in itself a very trendy niche the past few years, is done for profit of some sort. Macro-trends are difficult to ‘feel’ in any detail, because of the complexity involved, and are difficult to read as much of the data tends to be inaccurate, incomplete, and overly extrapolated. Immediate economic or political reasons often drive the response agenda, which do not always focus on the larger issues in play. But do we really understand how to navigate, if we do not know what direction to take for the long term? If we are only driven by short term interests, who is managing our longer term interests?
Gold has shot up dramatically in this latest crisis point, with values testing the $2000/oz mark. Hugo Chavez has even caused a stir in the rocketing gold market by announcing his plans on repatriating his gold abroad and nationalizing gold production located in his country. Gold, the dollar, and stocks are playing musical chairs with investors, as money chases safety, and a chance of profits in the volatility. Higher levels of fear and frustration are being reflected in the general populace as discontent festers. There have been periodic outbursts of social unrest in Europe, but continued joblessness and the stress of volatility may exacerbate unrest in the US, with a triggering event.
In the relative quiet of a hot summer weekend, news emerged of the historic downgrade on the American debt from triple AAA status. While the American dollar remains the world’s reserve currency, a psychological bridge has been crossed in the world, and it is really this that will have the larger impact on world economics. In the larger context, the huge imbalances that have held despite pressures to the contrary, will have been changed by a seemingly insignificant event to some. It was a shift in perception, articulated. It will be remembered as historic, more for this. The event would have come at some point or other, in some shape as this, but it has arrived now. The larger the economy, and America has a huge economy still, the larger the impact. The blame game has begun, but in all fairness this imbalance has been around for many years, as the ‘elephant in the room’ no one cared to speak about, or deal with. Increasing national debt covered the effects of increasing trade imbalances, and unfunded domestic obligations. This ‘elephant’ was not only an American issue, but existed in many a country’s closet. A ‘herd of elephants’ if you will. As ‘it’ stood quietly in the corner, we stopped seeing it and life seemed to continue along its way. The creature has been awoken with this transition point in the global financial crisis like some terra cotta figure come to life, and is in play now. It will be a natural reaction to try and make it go ‘back to sleep’, but the likelihood of this, is a function of political cohesiveness of actions done for the good of a country, in a climate of ‘what can you do for me’. In a pre-election year the turmoil is expected. The larger part of the problem unaddressed is not really how to put the elephant back to sleep, but how to regain its health. How to put it on a diet and give it the exercise it needs to be healthy again. The analogy is useful in that you cannot starve the beast to health by severe austerity, nor can you not do the required exercises to transition the economy to where it should be, and modernize it along the way to the new reality. True health cannot be achieved by dieting alone, cutbacks must allow a focused jobs plan that is future orientated and takes into consideration the evolving context of the situation.
What will be unexpected is the size of the social wave of discontent that will follow. This will prove problematic for governments, and for political parties as an unhappy population breaks its trust of traditional parties and institutions, and reaches out to express itself in new political movements, beyond the Tea party. Radicalization along the lines of the 60′s will re-emerge. Themes from revolutionary eras will be brought into current focus, as wealth disparities only increase in this time. We will see ‘waves of social unrest’ emerge from the wake of the Global Financial Crisis, as we fall into a direction change with this transition point.
The Second Wave of the financial crisis continues particularly in Europe where the downgrading of EU countries, and political crisis it engendered threatens the Eurozone. The political restructuring of Europe is occurring in response to the crisis.The periphery of the EU is in shambles as regions and countries such as the Baltics and Poland struggle with collapsed economies and banking systems, a by-product of mortgages denominated in Euros but paid back in the currency of the land, now sharply depreciated. The population now resentful of their earlier goals of joining western Europe, look toward other alliances such as the Baltic region, and whose interests are now being curried by the hand of Russia. In America, the United States struggles with continued unemployment and regulatory challenges, as the 2012 election begins to heat up the national political scene. In Canada, the regulatory framework of the banking system has saved it from the devastation of other regions, but the struggles of its major trading partners and the debts various levels of Canadian governments have, and are deciding to address, will begin to have a major impact in 2012 along with the demographics of a later boomer generation. The first boomers, born in Canada in 1947, will not reach the traditional retirement age of 65 until 2012.
Europe has its moment of social fireworks heighten as the battle over the epicentre of European debt, in particular Greek debt, is being fought over both politically, financially, and socially, with demands of extreme austerity by rescue packages being rejected by a population that no longers cares. By April the Greeks should know the extent of the austerity demands and bailouts amounts that will or will not be coming to a more measured degree, that should light the fuse for the periphery of the EU to rethink their EU imperative. What ever the case, shock waves can be expected to impact the global markets to some extent. This along with rising oil prices may cause a demarcation, a critical transition point for the global economy.
- Sheldon Filger: Global Economic Crisis Is Now a Depression: Paul Krugman (huffingtonpost.com)
- Money Morning Urgent Report: The Next Banking Crisis Starts Here (prweb.com)
- Recent financial crisis calls for innovation in financial development (currentindiaaffairs.wordpress.com)
- The Dollar – Still Sought, After All These Financial Crisis Years (ibtimes.com)
- A World Flying Blind (ritholtz.com)
- Tony Blair: Labour government was partly responsible for financial crisis (telegraph.co.uk)
- English warns of financial crisis lasting a generation (radionz.co.nz)
- Worldwide Financial Crisis: Libor Scandal goes Global (globalresearch.ca)
- Restoring Trust on Wall Street – Don Tapscott’s Financial Crisis Keynote Focuses on Three Principles (TrendHunter.com) (trendhunter.com)