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  1. Wealth
February 10, 2009

Global depression time

By Spear's

Why are we calling the Global Depression now? Answer: because it is a fact and no one knows what to do next.

At WMS we have never assumed the Global Crunch wouldn’t spawn Global Depression. In fact we began using the D-word just as the authorities and commentators started using the R-word, about six-to-nine months after it was obvious that the G7 were in one helluva downturn.

Why are we calling the Global Depression now? Answer: because it is a fact and no one knows what to do next, except throw money around like confetti, which in turn will cause its own problems as soon as recovery rears its welcome head.

How come? Answer: the more money thrown around in bail-outs, economic stimuli packages and central banks’ Quantitative Easing, will lead to super inflation down the road, which will cause interest rates to rise and choke off the incipient recovery, leading to Global Super-stagflation. The effects of this will pervade the global economy for up to a decade.

How can we be so sure of these dire predictions? Answer: the process has already started, as the yield on10-year US Treasury bonds has jumped 50 per cent in six weeks since New Year’s Day, from 2 per cent to 3 per cent, so the real cost of capital is rising as assets, wages and unemployment continue to slide.

This is signalling that more confetti money must be thrown around to reach the bottom of the debt deflation curve, without which there will be Global Slump, accompanied by protectionism, civil unrest and conflict.

So, more Quantitative Easing will have to be on the central banks’ menus as Le Plat du Jour for the rest of 2009, which will see the Big Inflation get going in 2010, as the cost of capital rises exponentially, as public sector borrowing crowds out the private sector from the still-dysfunctional credit markets. It’s now as predictable as night follows day…

In which case, the evidence of these predictions should be all around us, and it is. Starting in America, President Obama is about to unleash an $820 billion stimulus package, property prices of all types are still falling, the banking system is still illiquid and the second half of the TARP, $350 billion, is about to be deployed.

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Wages at IBM and Motown and everywhere else are being cut one way or another, as production and consumption keep on plunging and unemployment rises at the fastest rate since the 1930s, up a staggering 598,000 last month.

And it’s the same in the UK, only worse, and across Europe too: Spain’s unemployment rose by 200,000 last month and is heading to 20 per cent as house prices head south, as they are in France, and German orders fell by 25 per cent in December as against a year ago. And as for Japan, you don’t want to know, so look away now.

I could go on, but what’s the point? The world is in a total mess, as the Wall Street bankers trouser $18 billion in bonuses, and the City’s bankers £5 billion, for busting the world economy. It’s totally irresponsible behaviour like this that is the stuff of civil strife, as the public mood moves on from incomprehension to anger.

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