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  1. Wealth
June 22, 2009

My new friend at the IMF

By Spear's

This column has often felt lonely ever since it predicted the banking collapse in February 2007, but at last we have a friend

This column has often felt lonely ever since it predicted the banking collapse in February 2007, then a long recession, 3,000,000 unemployed in Britain was forecast eighteen months ago, as were the bankruptcies of GM and Chrysler, and more recently that there would be no V recovery, not even a W, but a VL—, or if you’re from Arabia a ب, where the dot underneath is the man who looked up and saw what was happening.

At last this column has converted another member of the Human Race to its predictions, one Dominique Strauss-Kahn, a gentleman employed by the IMF. His admission? “The large part of the worst is not behind us yet”! Well, most of us wouldn’t have put it quite like that, not even if Britain’s Secretary for Business, Lord Mandelson, was standing right there in front of us.

So you can see why our new friend Dominique is worried stiff: the US banks have need of $275 billion new capital, probably a lot more in fact, and the Eurozone banks need $375 billion, says the IMF.

The ECB says Eurozone banks have to write off $285 billion; and UK banks £150 billion+, but the latter are hiding behind their Asset Insurance Scheme, so un-thoughtfully provided by the man named after the colour brown, as he sticks another one on the UK taxpayer.

No wonder he is known as ‘The bill is in the brown envelope in the post, Gordon’, as the PSBR deficit just for May hit £20 billion.

And all this Credit Crunch is affecting the Real Economy, that’s the bit where real people make and produce things that other people want, like food, clothes and shelter.

It’s not good in Autoland, where Obama has bet $50 billion that GM can make cars that people actually want, a big gamble if you ask me that is destined to failure, ditto Chrysler where the Italians will end up with a marketing arm in the US in exchange for some clapped out cheap engine echnology, but no cash.

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It’s no better in Airspace, where IATA predicted airline losses of $2.25 billion last month, revised to $5.0 billion at the beginning of June, revised upwards in mid-June to $9.0 billion, with Willie Walsh of BA, whoever he is, saying he can’t see anything out of the windscreen any more, while Boeing has won 65 new orders this year but also lost 65 orders too, a neat bit of symmetry that tells its own tale of zero-led growth and further problems to come.

It’s being so right that has been so boring and losing all my friends who can’t stand any more of this, but at least my new friend Dominique understands me and wonders what will happen next, which at least is very thoughtful of him.

Well, Dominique, mon nouveau brave, it’s not good, but you’ve just said that anyway, that the green shoots will turn out to be weeds. The trouble is this: after the German elections, on either side of Christmas in Q4 ’09/Q1 ’10, the banks in the US, UK and EU will have a relapse and need some more medicine in the form of cash; the trash-a-banger auto schemes will end and car sales will plummet, as will aircraft orders, and consumer spending will collapse as people save cash; international trade will suffer again, as food prices rise; the UK’s debt rating will take a fall as the man named after the colour brown clings manically to power spending money he no longer has, while his friend Tim-Nice-But-Dim scratches his forelock as he wonders where all the Chinese investors have gone with their dosh. Oh, Dominique, what will happen then?

Ha, ha! Inflation will ride to the rescue, I promise you, as the oldies see their savings evaporate and their pensions crater, while the young will see their taxes rise along with the starter-home they can no longer afford.

But inflation will do what the borrowers cannot do, namely burn their debts by rendering them increasingly valueless in real money terms, while deflation in wages turns the screw the other way.

Isn’t Capitalism wonderful, Dominique, where one banker’s greed has these days become another worker’s redundancy? Oh, it will all end in tears and civil strife yet, while Gold, that age-old store of indisputable wealth, soars through $2,000 and more, and that’s just for a mere ounce.

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