(snip)"The « emergency repair » of international financial channels, achieved by the countries of the Eurozone at the beginning of this month of October 2008 ( 8 ) , should not hide three fundamental facts:
• The “repair” was necessary to curb the panic that threatened to squander the entire global financial system in just a few weeks, but what it heals temporarily is merely a symptom. It has just bought a bit of time, two to three months maximum, as the global recession and the collapse of the US economy (the table above shows the staggering increase of US banks’ borrowings from the Fed) will speed up and create new tensions in the economic, social and political fields, that must be anticipated and coped with as soon as next month (as soon as the “financial packages” have been implemented)
• The huge financial means allocated worldwide for « emergency rescues » of the global financial system, though they were necessary to put back in order the system of credit, are lost for the real economy when it is on the verge of facing a global recession
• The « emergency repair » results in further marginalization, and therefore weakening, for the United States, because it sets up processes that are contrary to those advocated by Washington for the allocation of the Hank Paulson’s and Ben Bernanke’s 700-billion USD TARP: bank recapitalisation by governments (a decision Hank Paulson has now come to follow) and interbank loan guarantees (in fact Euroland governments substitute to credit insurers, a mostly American industry at the centre of global finance since decades). These trends turn more and more decision-making relays and financial flows away from the United-States when because of the explosion of their public (9) and private debt they need them more than ever; not to mention pensions going up in smoke (10).
The last aspect shows how, in the coming months, solutions to the crisis and to its various sequences (financial, economic, social and political) will increasingly diverge: what is good for the rest of the world will not be good for the United States (11), and now, Euroland in the first place, the rest of the world seems determined to make its own choices.
The sudden shock that will result from the US defaulting in summer 2009 is partly due to this decoupling of decision-making processes of the world’s largest economies with regard to the US. It is predictable and can be dampened if global players start to anticipate it. As a matter of fact, it is one of the topics developed in this 28th edition of the GEAB: LEAP/E2020 hopes that the September shock has “educated” the world’s political, economic and financial policy-makers and made them understand that it is easier to act by anticipation than in a panic. It would be a pity if Euroland, Asia and oil-producing countries, as well as US citizens of course, discover one morning of summer 2009 that, after a long-week-end or bank-holiday in the US, their US T-Bonds and Dollars are only worth 10 percent of their value because a « new Dollar » has just been imposed (12)."(snip)
from
I'll also include the footnotes, since they are extremely important references
(snip)"( 8 ) It is indeed the Eurozone which curbed the spiral of global panic. For weeks, the US and British initiatives followed one another without any effect. The eruption of a new collective player, the « Euroland summit », and the wide-ranging decisions it made, are a new and soothing phenomenon. It is for this very reason that Washington and London have systematically prevented such a summit from taking place ever since the Euro was launched, 6 years ago. A complete set of diplomatic gesticulation was required (preliminary meeting, pre-summit group photo,…) to make the British Prime Minister believe he was not set aside the process, when in fact there is no reason why he should take part in a Euroland Summit. In this edition of the GEAB, LEAP/E202020 comes back on the phenomenon and the long-term systemic consequences of this 1st Euroland Summit.
(9) The US financial rescue plan has already increased by 17,000 USD the debt owned by each US citizen. Source: CommodityOnline, 10/06/2008
(10) It is indeed 2,000-billion USD of capital-based pensions which evaporated in the past few weeks in the US. Source: USAToday, 10/08/2008
(11) At least in the short-term. Indeed our team is convinced that it is not bad at all for the American people in the medium- and long-term if the system currently prevailing in Washington and New-York is fundamentally reappraised. This system has thrust the country into dramatic problems among which dozens of millions of US citizens now struggle, as illustrated in this article by the New York Times dated 10/11/2008.
(12) Even if it will be a minor-scale measure compared to the prospect of a US bankruptcy, those who think that it is time to invest again on financial markets may find useful to learn that the New York Stock Exchange has recently reviewed all its circuit-breaker thresholds as a result of ratings collapse. Source : NYSE/Euronext, 09/30/2008 "(snip)




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