GLOBAL FUTURE ANALYSIS
INTRODUCTION | PROLOQUE
The Global Future Analysis describes the causes and impact (effects and dangers) of eight global crises that currently occur/grow in the same short period of time (only five years) in times where (and also because) population and purchase power (=wealth) steady grow to higher levels. The Credit Crisis, the Energy Crisis, the Water Crisis, the Mineral Crisis and the by these 4 basic crisis caused other crisis as the Food Crisis, the Stagflation/Economic Crisis, the Currency Crisis, the Governmental Crisis and the Geopolitical Crisis. The Credit Crisis started mid 2006 with the end of the house price rise and came one year later in mid 2007 to the surface with the first signs of the Credit Crunch (back in those days not called the Credit Crisis yet) by the fall of two major hedge funds of Bear Stearns and will find its end within some years with a severe Geopolitical Crisis. Leaving the Climate Crisis (too complex and over exposed) and the Moral Crisis (Guantanamo Bay, Abu Ghraib, water boarding and weeks of imprison people in body size coffins: the War on Terror has became a War on / Breakdown of Values: breaking/destroying just that what we want to defend and promote and believe in) untouched. The problem with simultaneously occurring crises is that they enforce each others impact severely. As by Murphy's Law simultaneous appearing crises enforce each others impact: When 1 crisis has 1 impact equivalent, 2 crises simultaneously has 4 impact, 3 crises simultaneously has 9 impact and 4 simultaneously crises has 16 impact. Energy has given 150 years of tremendous economic growth. The current model/structure of financials and governments is based on economic growth. When economic growth disappears and even turn into economic decline by increasing energy costs and over the top credit supply in the market, they both got stocked / come into problems and influence economies/societies severely the other way around. The Global Future Analysis has not any doomsday characteristic, but just a realistic analysis of causes, effects and dangers and a complete list of solutions. Just see the future economy as a mix of the next six price facets (as six shove switches of an equalizer): Energy high/scarce, transport high/scare, materials high/scarce, credit high/scarce, technology high/abundant, food high/abundant and labor low/abundant. Combine/forecast these six factors or influences as good as you can and you've got an accurate future image. The current combined energy and credit developments will have huge side effects/consequences. That's no rocket science. An simple example everybody could agree on: International holiday travel has been boost by the low oil/energy prices of the last 20 years to massive volumes. When the low oil/energy prices are over, massive volumes in holiday travel will shrink/implode as easy as they have boost in the past. By high energy prices air travel become a luxurious event like it was again. As simple as 0 + 1 – 1 = 0. To go beyond this example: Shortened supply of energy and credit will of course have huge effects. Most countries (except for Russia and Brazil) will face a lost decade ahead, and countries with combined energy/credit problems (more specific: almost the whole western world) will face two lost decades ahead. Economies that will be able to develop in the shortest time advanced localization (right combination global/local that suites the occurring developments) will have less damage of these developments. The stocks of banks with US housing and/or treasury exposure will be worthless. All these banks will be nationalized. Pension funds with US housing and/or treasury exposure will have severe capital problems. In the US foreclosures will be stopped by both FDIC government policy (see the IndyMac Bank after the run on it and the FDIC intervention caused by that) and maybe additional home owners protection legislation (in case of mortgage ownership rights of creditors above the FDIC inventions), making the whole US mortgage debt in financial value as weak as mud. Both bank stocks and commercial debt paper will become total worthless. A housing price devaluation has forced a capitalistic model government to swift to Capitalism Light as the economy bleeds foreclosures, bankruptcies and jobcuts. Treasury Secretary Paulson (hired for his splendid relations with the higher levels in Chinese Government) stated July 22 that 'banks must cut dividend payments and acquire new capital'. This combination (no dividend payments plus the rising capital) eliminates totally the capital rise option by stocks: nobody will buy share of banks with liquidity problems, that don't give dividend on stocks while they still have fruitcake balances full of over-valuated valuated assets, which stock prices only can go more down till the clean up their balance sheets. The value of financial stocks will vaporize to zero value. The stockholders of Freddie Mac and Fannie Mae are the next ones to face this. The stockholders will be sacrificed in the rescue attempts. Sacrificing the bond owners is not possible without huge conflicts: Huge foreign governments and central banks will not accept this. Nixon has done such a huge international risky step back in the '70ties when there was only $ 18 bn gold left and foreign governments wants $ 36 bn gold back. But that where other times: the US was the center of the world and the Cold War binds the effecting countries to the US. This is no longer the case: the US is no longer the center / driving force of the world and Russia has left the military road to power and has gone on the economic/trade/currency road to power. The financial system is broken. Paulson will not be able to fix it. There is a problem with underlying values that can only can be fixed by actual valuating. The financial system will not be able to absorb such a tsunami of revaluations (downwritings). The Euro for example is very 'strong' 'covered' by US dollar cash en securities. An actual example: the top level all (regardless quality) government sponsored mortgage buyers Fannie Mae and Freddie Mac are very heavily funded by foreign nations and foreign currencies. There are two options: 1) revaluation or 2) replacement. In case of revaluation the US government will decide to reduce the debt burdens of both the nation and the GSEs (like Fannie Mae and Freddie Mac) by an unilateral debt cut (similar to Nixon's ending of the dollar convertibility into gold in 1971) or currency deflation, otherwise they will sink by their debts. All commercial and governmental debt paper overall will be valued at 50% maximal (by bankruptcies, high inflation and devaluation). The US will become the bad boy in the global class, by whom irresponsible behavior we must overcome the energy crisis without a healthy financial system. People who say that the Credit Crisis is over / has bottomed (while house prices still drop severely) must be publically exposed as no-brain 'happy days are back again' intellectual light weights: these (mainly) guys don't really know what they're talking about. Banks has still hide enormous amounts of worthless mortgage CDO's, hides also enormous amounts of lost value on the stocks they hold, the air is (further) pushed out of both the housing market and the stock market and banks tries to delay downwriting as long as the auditors can be talked in to support this (based on 'historical' instead on actual value norms): cooking the books is about just being able to talk smooth to auditors. The ability of banks to create loans (as in: generate new turnover that is needed to get profits to cover/balance the losses) is reduced severely: turnover is no cure in a slow market with also less money creation. And while economies stopped growing and even starts declining, complete new lost area's are on the horizon: credit cards loans, student loans, install base leasing, consumer credits, corporate credits, LBOs and the CDSs as risk transferring derivate of all of these non mortgage based credits. According to the BIS (Bank for International Settlements) end 2005 the CDS value was $ 14 trillion, end 2006 it has grown to $ 29 trillion and end 2007 it went up above $ 45 trillion. Give it a beautiful name, add some fake good weather insurance and sell it to less thinking no-brainers who are not interested in real underlying values nor real insurance, but just in high bonuses on fake profits and blinded by the economic growth dogma. Is insurance by Ambac, MBIA or FSA something not fake? They guaranteed the collapse of a bubble with only coverage for small losses. They only guaranteed the sun during daytime. They're designed to insure against incidental failures, not against total market failures like we have now. The collapse or serious downgrading of those two leads to a complete new reconsideration of the financial assets that are 'backed' by them. This is the reason why everything is kept where it is, without almost anything falling (except for the real underlying market determined values): demanding hard cash from these insurers is like shooting oneself into the leg: the cost of it (loss of fake insurance on more assets) is less than the cost of keeping worthless assets fake in place. This immediately reduce the loan creation capacities of financials once again dramatically if they will apply to the (rational) Basel II standards. The last phase of downwriting will be just stripping goodwill in the books: goodwill will be disappeared and therefore become worthless (impairment: downward revaluation of fixed assets). Conclusion: The world has financed USA her over consumption if it was a heavily real values producing gold mine. Financing the USA economy was subsiding a fake (mainly on consuming by debt grow based economy) is now making real and severe losses: the time of the real values are arrives when debt/credit grow had reached it max: then the hidden problems (not having a producing economy) hit reality with years build-up tension. The position of America's at the top of the 'global economic food chain' has been blown up by overstretching this very comfortable position, by even wanting more than that. This consuming focused development has depleted the nation of its hard-earned wealth, and has led the US to the brink of ruin. It was the wrong way, it wrecked a very good economy based on being the best producer of the world. Current American capitalism is just a new type of socialism, where consumption and not production is king. Now the USA has to restructure their consuming/debt based economy to a producing economy (not easy and very painful) and pay off their debts (not easy and very painful), a quadric burden caused by very bad financial and governmental polities, feed by the too stupid for words believe in 'economic growth' (even if it is fake: as long as it 'growth' it did the job (temperately of course: faking is economic not sustainable). The backfire of economic faking is severe and hits the fakers and their followers hard. A lender of last resort (as the FED is) is only functional by incidental bank failure, not by a total financial market failure like is happening in 2008. The second option or solution for a sinking financial system is replacement. This option is attractive to governments because it makes the best out of a severe problematic situation for them. This option eliminates all not by real assets covered debts and assets and is really robbing completely everyone that has not covered assets. This option is appealing for governments because 1) they can blame others 2) gets overnight freed from their debts 3) give the possibility to expand international power. The only hope the world have that this re-start of the financial system will not be initiated by the USA. First 1971 (50% lost), than 2008 (??% lost), the US has showed the world that they can not handle the wealth of having the money presses. Financial systems is about trust. Two times bad luck is no bad luck, but bad management. If there will be a global currency: it will not be the new US dollar, the world economy and national governments will not accept that based on 1971 and 2008. There are three options: 1) a new global currency (who will have the trust to be the bank? energy surplus nations?), 2) new national currencies (based on money creation by state assets -buildings, bridges, waterworks, powerworks, etc- and spending -dangerous!- instead on money creation by fractional banking based debt increasing, no central banks any more, the treasury takes over the money supply, government and money supply becomes one again, taxation disappears, inflation will place taxation -does it already substantial- and will only appear as governments overspend relative to real economic growth -otherwise government investments only have positive effects-, sustainable economies no longer based on exponential growth -will be seen as concept of the past- but based on sustainable growth -financials and assets will grow side by side- will appear, democracy will guarantee nations that they can fire bad national management, states will only invest, will cut in overhead and subsidies and social systems with a gradual exit strategy on it) 3) local currencies (as energy prices will rises, distances will get shorter and shorter, economies will become more and more local advanced, the future of any above national governmental layer is at stake: the action will be on the whole world many local, trust in the financial system and above local layers present national/supranational/global governmental structures will be weak, local currencies will appear). Local enhanced economies doesn't are interested in chasing a man with a beard in a tent somewhere in Pakistan, nor have appetite to pay for thick governmental layers far away with low contributing economic values for their local enhanced economies. Energy price rise changed the view on the world for everybody globally. Local focused enhanced economies has other priorities. Terror can not hit them, they're not interested in terrorists. They just want a good economic local performance. The economist Kunstler describe (based on energy price developments) an economic perspective that "national governments maybe lucky if they'll still be able to manage to pick up the phone in 2020", and "federal or super-national governments will be totally abandoned in 2020 by the increasing importance of economic localization due to energy prices". The Credit Crisis could not pick a worse timing: overcoming the Energy Crisis is very much (near one 100%) about being able to invest: transition takes capital for emerged downwriting old high energy demanding investments and emerged investment in new low energy demanding economy. And maybe the effects Credit Crisis just speed up the answers to the Energy Crisis (advanced localization). Economies with no credit crisis problems will also perform much better, being able to address the energy situation (equals energy investments) better, quicker and more intense. Don't shoot the messenger for al the information present in this analysis: People that have though about possible consequences often/always have (like chess players) though about possible solutions. So the impact of possible positive changes/reactions has where possible been taken into account in this analysis. Knowing where the stones and holes are on the global road next years is no luxurious knowledge: this knowledge ease driving a lot. Solutions enough available, but the first step is recognizing and admitting that there are some severe problems actual occurring and some tough consequences caused by these ahead. This comprehensive analysis present all these facets in approximately 150 pages text-only without illustration pictures/graphics. This Global Future Analysis is a shortened, more popular written version of the much more extended and comprehensive approximately 250 pages counting Global Resources Analysis, which has been read by many global leaders (for testimonials see the GRA part on the www.planck.org website).
Author: Gijs Graafland
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