If the recovery really does take off, it will soon herald tin-hat time again, as inflation falls like a heavy shower from the sky, interest rates stay behind the curve as the banking system still has too many bad loans not recognised, and inflation really gets hold
The news from Davos was decidedly chilly: the good and the great can see signs of economic stirrings in the US, Japan and China – and that’s about it. World trade is decidedly flat, and shipping rates are very low. All economies, except Japan, are way off their 2008 GDP levels.
The US has artificially boosted their GDP by adding in the cash spent on R&D, and the EU soon intends to do this too: it adds about 3.0 per cent to GDP, thereby lowering the debt-to-GDP ratio. In my accountancy days, this was a warning sign of bankruptcy down the road.
This is best described as a very fragile recovery. It is fragile as the three rising economies are all being heavily-driven by massive QE: US at $85 billion per month, Japan at $70 billion per month and god knows how much every day in China. The only reason global inflation is flat is because the real growth numbers are flat too.
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If the recovery really does take off, it will soon herald tin-hat time again, as inflation falls like a heavy shower from the sky, interest rates stay behind the curve as the banking system still has too many bad loans not recognised – witness RBS this week – and inflation really gets hold. This is not about to happen yet, but the more QE now, the more inflation is baked into the pie.
None of this need bother the EU, which is a basket case anyway of its own making, caused mainly by the single currency: the value of the ‘one-size-fits-all’ euro suits Germany but no one else. Germany is best, and the rest are staring at deflation, and need a 30 per cent-plus devaluation against the German euro.
The real faultline is now between France and Germany, while the man in the crash-helmet with just one pair of shoes fiddles while Paris burns. The tax riots have started in Brittany, and Marin Le Pen’s Front National are blowing like zephyrs to fan the flames. France’s treasury takes 56 per cent of GDP, but in reality it’s much higher: the state owns large chunks of France Telecom-Orange, EDF, SNCF, La Poste, Airbus, Peugeot-Citroen, Renault, water companies, banks and whatnot else.
The truth is that over 70 per cent of the economy is managed by the Enarques, but it’s anarchy that’s blowin’ in the wind.
The Great and the Good at Davos were not fooled by what the suits at the ECB and in the EU say about the euro-crisis going away. Axel Weber, formerly head of the Bundesbank and now head of UBS, says the banking crisis will return in 2014: ‘Markets are currently disregarding risks.’
Kenneth Rogoff was blunt and to the point, now saying what Spear’s has been saying for years, that the single currency was ‘a giant historic mistake, done too soon’. But the political elite refuse to give up dreaming the impossible dream. The cost? Massive unemployment across Club Med, especially among the youth, the smartest of whom are leaving for the UK, US and Far East.
Those who are left behind have no hope: who is going to pay the taxes in ten years’ time, in Greece, Spain and Portugal, to pay for the schools, hospitals, roads and defence? Please write your answer on both sides of the paper at the same time.