The New Normal: Economic Weakness And
Decline - GEAB's Latest Economic Assessment
31 Jan 2012By Stephen Lendman
On Friday, S & P cut credit ratings for nine EU
countries, including France, Italy, Spain, Austria,
Portugal, Malta, Slovenia, Slovakia and Cyprus. It was
old news but not good.
France was downgraded from AAA to AA+.
So was Austria.
Italy fell two levels from A to BBB+.
Spain was lowered two levels from AA- to A.
Portugal fell two levels to BB.
Cyprus was lowered two levels.
Malta, Slovakia and Slovenia were downgraded one
level.
On January 16, S&P also cut the European Financial
Stability Facility's (EFSF) credit rating given added
pressure on nations to fund it, saying:
"We consider that credit enhancements that would
offset what we view as the now-reduced
creditworthiness of the EFSF's guarantors and
securities backing the EFSF's issues are currently not
in place."
"We have therefore lowered to AA+ the issuer credit of
the EFSF, as well as the issue ratings on its
long-term debt securities."
In early December, S & P put 15 EU countries on credit
watch. Fourteen remain there suggesting more cuts
coming. Especially troubled nations include Portugal,
Italy, Ireland, Greece, and Spain. As they go, so go
others, including economic powerhouse Germany.
Increasingly it looks weak. So does Britain.
The same day, talks between Greece and major creditors
collapsed. They want higher returns in return for
taking a 50% haircut on worthless junk. It's reflected
in one-year Greek bonds. They yield 396% annually if
they're around that long.
Hungary's also troubled. Its bonds are rated junk.
Western European lenders control 80% of Hungarian
banking. They caused the nation's troubles. Prime
Minister Viktor Orban wants more financial control,
and why not. Western exploitation wrecked the economy.
Nonetheless, Brussels wants him to implement greater
austerity and threatened legal actions for failure to
do so. Earlier, bailout negotiations broke down after
Budapest refused to cut public spending and
implemented new constitutional provisions asserting
greater central bank control.
Perhaps other troubled Eastern European countries will
follow Hungary's lead if it doesn't cave under
pressure.
Everything tried to resolve Europe's debt crisis
failed. Friday's downgrades suggest more to come.
They, in turn, indicate higher borrowing costs and
less confidence in troubled countries' solvency.
As France's creditworthiness declines, so does euro
value. S & P warned about escalating crisis
conditions, citing:
- tightening credit conditions;
- increased risk premiums for growing numbers of
Eurozone countries;
- "a simultaneous attempt to deliver by
governments and households;"
- weakening growth prospects; and
- indecision about how to resolve a deepening
crisis.
It also said reform based on fiscal austerity
"risks becoming self-defeating" because of less
disposable income, tax revenues, and fewer jobs. Of
course, S & P and other financial interests want
continued structural adjustment harshness, including
layoffs, deeper wage and benefit cuts, sweeping
privatizations, and deregulation.
On January 15, Financial Times writer Edward Luce
headlined, "We're back to the phantom future," saying:
"We may be entering that economic twilight zone
again." Days earlier, pundits were celebrating
America's recovery. Their relief's now suspended.
Visible weakness suggests "the horses may not be
racing out of the gates in 2012 as some anticipated."
Perhaps forecasters see "low visibility" for America's
economy. It might become "an epitaph for our times. It
may also help to remind ourselves just how bad the
forecasters have been."
A Berkeley study years back found that monkeys aiming
at a dartboard outguessed them. Just released 2006 Fed
transcripts showed policy makers oblivious to the
impending storm. Bernanke said at the time:
"I think we are unlikely to see growth being derailed
by the housing market. But I do want us to be prepared
for some quarter-to-quarter fluctuations."
In fact, he spoke near the peak of America's greatest
ever housing bubble still imploding with no end in
sight. The entire economy's affected with it. Talk of
turning the corner obscures weakening, not improving,
economic prospects.
In fact, safe havens are fast disappearing. When it
comes to sovereign credit, only a handful retain
triple-A ratings, and those with them show weakness.
It's spreading, not easing. Eurozone countries are
sick. Economist David Rosenberg called downgrading
France "a pretty big deal. (S & P) laid down the
gauntlet that kicking the fiscal dan down the road is
no longer a strategy undeserving of a response."
Moreover, 14 countries remain on credit watch. Expect
further downgrades ahead. Greece is bankrupt. Spain,
Portugal and Italy are basket cases. So is Eastern
Europe. Germany's now contracting. So is Britain.
Banking and finance are sinking. US retail sales and
exports are slumping.
China risks landing hard. America's record low 10-year
Treasury yield shows weak macro conditions. Initial
jobless claims are rising. In the past 30 months, the
labor force contracted by nearly one million. In the
last two months alone, it dropped by 170,000. This
reflects people wanting jobs who can't find them.
Challenger data suggest less hiring. JOLTS data show
more firings, and the National Federation of
Independent Business (NFIB) indicates fewer job
openings.
According to Barron's Rountable analyst Felix Zulauf
in response to the question, "What happens at the next
level of turmoil?":
"The banking system goes broke. Assume Greece won't
repay anything, or at most 10% of its total debt. It
is not just the government but the private sector that
is bust. That means banks in other countries will be
in trouble, which means they will be nationalized."
"Governments won't have the money to pay for this, so
they will assume more debt. That is the chain of
events I expect in 2012, and if you believe it won't
affect the US you are dreaming."
In 1979, Europe's Exchange Rate Mechanism (ERM) was
introduced as part of the European Monetary System
(EMS). It aimed to propel the continent to one
European currency unit (ECU). It never worked.
In his 1995 book titled, "The Rotten Heart of Europe,"
euro expert Bernard Connolly said:
"the true story of the ERM has been one of duplicity,
skullduggery, conflict; of economic harm done to every
country and in the caste interests of the elite; of
the distortions of economic logic and the dilution of
political accountability."
"The implication is that increasing globalization of
economic activity and mobility of production, has been
purposely implemented in such a way as to render an
already destroyed 'nation-state' a meaningless entity
in economic terms."</blockquote>
Provisions of the 1992 Maastricht Treaty established
the euro. In 1995, the name was officially adopted.
Its use began in December 1998. Seventeen dissimilar
countries adopted it as their sole currency. They're
trapped disastrously in its straightjacket.
In the mid-1990s, Connolly called establishing it a
hairbrained idea doomed to fail. Saying it cost him
his job as EU monetary affairs department head. He saw
disaster coming before the train left the station. The
moment of truth draws closer.
Progressive Radio News Hour regular Bob Chapman said
Germany and France want "new rules for budgetary
discipline." Their new plan's the same as the old one.
They feature austerity and ECB mega-loans for
countries and banks.
"There will be no real changes, just more debt. This
is more obfuscation because nothing is being done" to
resolve debt problems and jump-start economic growth.
Banks and sovereigns keep borrowing more money. The
ECB provides it. The Fed supplies it. It's creating
trillions out of thin air. The entire system can't
function without periodic money injections.
"The bottom line is there was no control before and
there will not be any in the future. These
incompetents stagger from one problem to another in
their futile endless search for world government."
As a result, Europe sinks deeper in trouble. This year
will be tough and 2013 tougher.
GEAB's Latest Economic Assessment
On January 16, the Global Europe Anticipation Bulletin
(GEAB) issued its latest economic assessment titled,
"Global Systemic Crisis - 2012: The year of the
world's great geopolitical swing," saying:
The year 2012 will reflect "great geopolitical swing:
a phenomenon which will without any doubt be the
bearer of serious difficulties for most of the planet
but which will also allow the emergence of
geopolitical conditions favorable to an improvement of
the situation in the years to come."
Crisis will touch the last "untouchables," including
America, Britain, the dollar, Treasuries, and "Russian
and Chinese leaders." In 2012, popular anger will
"massively" increase. People will assert themselves
enough perhaps to mark a "turning point" for eventual
better times.
"The great swing of 2012 is also the accelerated by
collapse of the Western banks and financial
institutions' power....And the great swing is finally
the arrival at maturity of the BRICS (Brazil, Russia,
India, China, South Africa)."
They'll start asserting a more pro-active influence on
international decisions. They better given the mess
Western nations made of things.
Stephen Lendman lives in Chicago and can be reached
at lendmanstephen@sbcglobal.net. Also visit his blog
site at sjlendman.blogspot.com and listen to
cutting-edge discussions with distinguished guests on
the Progressive Radio News Hour on the Progressive
Radio Network Thursdays at 10AM US Central time and
Saturdays and Sundays at noon. All programs are
archived for easy listening.
http://www.progressiveradionetwork.com/the-progressive-news-hour/
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