A tragedy of Shakespearian proportions is slowly unfolding in America. In this article I want to explore how the deep-rooted problems in the American economy may affect business in the UK.
I am now certain in my own mind that the days of the dollars role as the world’s reserve currency are numbered. The Fed is printing money like its gone out of fashion to fund their budget deficit.
Foreign investors are cottoning on to the strategy of inflating the economy to reduce the real cost of repaying the debt and are withdrawing their support.
The printing of money is likely to lead to hyper-inflation and long-term depression and collapse of the currency. When and how quickly this will happen is anyones guess but when it happens the collapse will be swift, as panic takes hold.
There is likely to be social unrest and a return to 1930′s-style deprivation for many of the disenfranchised in the United States. Books are being written now on how to survive the coming winter of discontent.
The Americans have had it relatively good for many years and it will be hard for them to bear the consequences of their greed and incompetance. There are certainly many people in the world who would like to see them humbled.
However, the impact on the rest of the world will also be severe. After all, America is the worlds largest economy and many countries have relied upon the American consumer buying up their goods. US banks and their customers are in full retreat as they try to reduce their debt to stave off the impending disaster.
They just about survived the sub-prime mortgage fraud but tough hurdles still lie ahead as many loans will have their rates reset between now and 2011 – this will trigger a fresh wave of loan defaults with consequent knock on effects to the property values and the security for their loans. The impact will be huge and many of the US banks are on the at-risk register, having insufficient capital to cover the fresh wave of bad debt about to engulf them.
If the US loses its triple A rating and reserve currency status, the rate at which it can borrow will rise increasing their debt burden further, leading eventually to a default on their obligations. Can they avert distaster? It seems highly unlikely at the moment as their government is furiously digging a bigger pit to stave off the day of reckoning.
The stock market has risen and many assets have risen in value on the back of quantative easing but the underlying figures in the real economy are very weak. In fact the whole system, whilst bankrupt in fact, is supported on confidence alone. In these circumstances, telling the truth would only trigger panic so you cannot rely on the government to provide accurate data.
However, those economists in the know are quietly spreading the word and gold continues its gradual rise as more and more people look for a safe haven for their money.
Unfortunately, we in Britain will be hit badly because our government is also weak and incompetant, having run up a large public sector debt, manufactured a large trade deficit with their ridiculous social agenda and squandered tax payers money at every conceivable opportunity.
If they could not manage their expenses properly, then running our country is certainly beyond the capability of our MP’s. It is sickening to see Tony Blair picking up his large pay-off for supporting the Americans in Iraq and Afghanistan. Is the Labour government guilty of treason?
Turning back to the impact on business in the UK – the IMF reckons that our banks will need to raise further provisions of 165% more than they have raised already by 2010. Neither business nor the consumer can expect any help from this quarter.
Further large rises in unemployment and a further collapse of the property market in the UK are big probabilities in my opinion, plunging us too into depression some 18 months after the US. You see the bubble has not yet unwound and their is no way to hold back the consequences of our behaviour in the bubble years – they are just delayed, probably for vote-rigging reasons, by printing money.
Watch how the drama unfold post the election in May 2010 … if it takes that long for the penny to drop! In the meantime, we must position ourselves for survival and remember that there is also business opportunity in adversity.
Think I’m a lunatic do you? Well read these two reports before you consign me to the nut-house -
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