GLOBAL FUTURE ANALYSIS
CREDIT | FUTURE
If nationalizing/socializing all stressed 'assets' of the banks and deflating all the other cooked air on their balance sheets succeed depends on the fact of the US economy will be able to start produce again. Only than the US economy can pay the huge load of debt and interest. The FED (now a private enterprice, without any accountability so ever) will be nationalized, her balance sheets will become public. The same will happen with all other central banks globally. In the pre-nationalizing process of the central banks there will be the same robbery as took place in Russia in the pre-privatizing process when communism was abundant. Only if all the global dollar asset (treasuries and bonds) holders (central banks, pension funds and sovereign wealth funds) will start to exchange their dollars debt papers for actual products (an by the FED organized US bonds for US products program), this could have good effects. This development could certainly support the US economy and is the only nice way out for both the parties and of course the repurchases of the Treasury Bonds not silence by the Open Market Committee (their will not be other buyers), but openly by the FED. It can have a severe declining effect on the dollar, but this development will be softened a little by the fact that the purchases in dollars certainly will support the US economy. This is best solution for both the US and the world. The capitalistic model of letting failing banks just fail is no option in the current situation. That's sure the right thing to do in an environment where bank failure is an incidental occurring. But in the current situation it is no option: things has grown to long, to fast, with to much power wrong. The whole dollar banking industry globally is wrecked. Not choosing for a bailout would be equal to choosing for certain economic/societal collapse. There for a bailout combined with convertibility of dollar debt paper to US industry order is the only way out. If this fails, the next possible solution is abandon the dollar and fix everything overnight (with no more friends anywhere in the world in the morning). Of course the USA will try to get the currency replacement done in a 'Mutual Agreement' (as in: let us do the same trick again with a new currency that replaces both our and your currency), not implemented by the FED but by the BIS (Bank of International Settlements), but the US imago in the world concerning financial values has to bad for such a trick. Only a few nation will fall for that solution, the rest just will be angry and write down the assets and the US for ever. The year 2008 is not the year 1971, times are changing since than. There is no Cold War more outside. The US is this time not the leader and protector of countries (accept of some strategically located small sized countries with small economies like Georgia). The dollar asset holding nations are more diverse than back than. There is no ideological bounding issue any more. There is no common enemy this time. The War on Terror has not been able to replace the old 'bounding' Cold War facet. Times are changing. The bandwidth/playground/movement of the US is limited. The opinion of the former Comptroller General of the United States (a fancy name for the director of the national governmental budgets accountant/auditor) and thereby former head of the GAO is interesting. His official (as in: spoken while he was still in office) view on the US debt can be found on YouTube. "Walker last year issued an unusually downbeat assessment of his country's future in a report that drew parallels with the end of the Roman empire. He had warned that the US government was on a "burning platform" of unsustainable policies and practices with fiscal deficits, chronic healthcare underfunding, immigration and overseas military commitments threatening a crisis if action was not taken soon. There were "striking similarities" between America's current situation and the factors that brought down Rome, he had said. These included "declining moral values and political civility at home, an over-confident and over-extended military in foreign lands and fiscal irresponsibility by the central government." It's a fact that the man's job was to be pessimistic, but the figures he presents are certainly not nice. An other very important YouTube footage on the US debts, budgets and corruption is the Rumsfeld press meeting in the Pentagon on the morning of September 10, 2001 (the day before) with the message that (not even deep) research has showed that at least $ 2.3 trillion (with a t) of transactions we're unaccountable within the Pentagon (25% of each yearly budget). This CBS footage can be found by searching for Rumsfeld Pentagon Trillion on YouTube. It's clear that debts/budgets/corruption are related subjects, these three has a lot in common and are connected by private greed at expense of society. Private focused entrepreneurship within the government, parasiting governmental funding for own private benefit. Gorbashev fought the last years of the USSR against the same problems: corruption on budgets, corruption on positions and over-lobbied structures by institutional/corporate interest groups. The three things that severely damage the function and legitimately of any government anywhere and anytime, regardless its ideological flavor. Privatizing governmental budgets, privatizing profits, socializing debts. Decades of artificial tailwind has fuelled also this wrong three developments without the needed correction. All foreign US assets owners knows that only a conversion of debt papers against real products is the solution that can bring the US back on its feet. On the other hand all US debt owners knows that when it goes down it goes down by 1) the bank/trade deficits (as the FED can issue and buy as many US debt paper with printed money as foreign buyers goes on purchase strike) or by 2) a very deferred but massive 'going short' action on both the dollar and the US debt paper holders (profiting overnight as much on decline as they have lost in the last years on decline), lifting all there exposure overnight into safe harbors. Wallstreet will be associated with losses by the losers of this end game. One thing is clear: the coming decade there will be one of a bubble resistance, a real value appreciation and a huge sustainable prosperity drive. Precious metals will rise severely as becoming the safe harbor for people who wants to shift their capital out of the currencies before they will decline due the bailout of the financials. And importing will become very expensive for all countries and certainly for the US.
Author: Gijs Graafland
Back to Credit Index
Download the full Global Future Analysis report in PDF