STAFF NEWS & ANALYSIS
Global Economy Spins Out of Control?
By Staff News & Analysis - March 23, 2010

The stage is set for a showdown between Angela Merkel (left) and Jose Manuel Barroso, the European commission president, after the German chancellor said a bailout for Greece should not be on the agenda of this week's EU summit in Brussels. Barroso had called for the eurozone countries to use the two-day meeting to agree to a co-ordinated package of loans that could be quickly put in place if the Greek government decided it needed help to reduce its ballooning budget deficit. He warned that the financial markets were being unsettled by the lack of clarity. But Merkel said in a radio interview that Greece was not in danger of default and aid for the country would not be a topic at the summit, which starts on Thursday. "There's no looming insolvency," Merkel told Deutschlandfunk. "I don't believe that Greece has any acute financial needs from the European community and that's what the Greek prime minister keeps telling me." She said it was the persistent speculation about a possible bailout that was creating the volatility in the financial markets and warned against raising "false expectations" that other eurozone economies would come to Greece's rescue. The euro took a tumble last week, dropping to $1.35, amid all the talk about a possible bailout. "I don't see that Greece needs money at the moment and the Greek government has confirmed that. That's why I'd urge us not to stir up turbulence in the markets by raising false expectations for Thursday's council meeting," Merkel said. – UK Guardian

Dominant Social Theme: It will come right eventually, won't it?

Free-Market Analysis: Is the world spinning out of control? Europe, America and Asia face significant challenges and it is not at all clear that these are currently being surmounted. This article will take a brief look at the world's trouble spots and then suggest what can be done –if anything – both from an investment perspective and a sociopolitical one. (Yes, dear reader, in this single article, we are capable of doing such a thing, sure we are!)

The EU first. The above excerpt from the Guardian is one of literally thousands of recent articles illustrating the gravity of the problems faced by the European Union as it struggles with the potential insolvency of many of its larger member states, Greece chief among them. The Bell has consistently maintained that the EU experiment was bound to hit the rocks at some point – and the only question left in our opinion is just how bad the crack up will become.

For the EU the looming question is not who (which country or countries) will backstop Greek profligacy (Germany is the obvious candidate) but what mechanism is to be used that will ameliorate similar conditions in a half dozen other countries as well (the Pigs) that have in most ways operated no differently than Greece. This is not an accidental evolution by the way. The EU did it to itself. Those in charge of the EU were so eager to gain more members that they ignored the various ways that member states fudged their numbers in order to prove they were worthy of admission – and the juicy lower interest rates that they would enjoy as part of a more stable currency. Now the fudging is unraveling and the EU has a big problem on its hands. But the EU is not the only economic region that is struggling currently. The Asian block of hitherto successful economies is showing signs of cracking up as well. Here's something recently written about China:

China: the coming costs of a superbubble … China may seem to have defied the recession and the laws of economics. It hasn't. When China's bubble bursts, the global impact will be severe, spiking US interest rates. … The world looks at China with envy. China's economy grew 8.7 percent last year, while the world economy contracted by 2.2 percent. It seems that Chinese "Confucian capitalism" – a market economy powered by 1.3 billion people and guided by an authoritarian regime that can pull levers at will – is superior to our touchy-feely democracy and capitalism. But the grass on China's side of the fence is not as green as it appears. … In fact, China's defiance of the global recession is not a miracle – it's a superbubble. When it deflates, it will spell big trouble for all of us. – Christian Science Monitor

China has been seen as the latest, great Western success story, a good example of what a super-state can accomplish once it adopts the paraphernalia of Western rulership – especially central banking, currency manipulation and the over-printing of fiat money. But today as the Bell has pointed out in numerous articles (and now others as well), China looks vulnerable as the after-effects of printing too much money begin to come clear.

There is obviously a property bubble in China, but the idea that bubbles exist by themselves is yet another questionable assumption made by modern economists. We would argue, in fact, that the whole economy is in a bubble, and thus that sooner or later the whole economy will at least to a degree collapse. If China's economy goes south the West would certainly feel additional pain, probably deep pain. And yet it's not just China which is troubled. Japan has been feeling the after-effects for decades now and we note that great island nation seems destined to suffer through yet another miserable "recession."

How's the Anglo-American axis doing? Britain it would seem remains a basket case, with some comparing its profligate public spending and resultant difficulties to what Greece faces. It's unclear at this point whether Labour will retain power in the upcoming elections, but no matter who is in charge, Britain will continue to struggle for the foreseeable future. The United States meanwhile, has its own problems. The Obama administration, rather than bringing the country together is proving to be one of the most divisive in the nation's history. Not only are American politics souring, the country is also struggling with an ongoing economic unraveling that from our point of view is nowhere near at an end. Optimistic voices have been raised of course, proclaiming that the American recession over. We're not so sure. Here's an excerpt from a recent article that emphasizes some of the ongoing negatives faced by America:

USA risks AAA rating …The bond market is saying that it's safer to lend to Warren Buffett than Barack Obama. Two-year notes sold by the billionaire's Berkshire Hathaway Inc. in February yield 3.5 basis points less than Treasuries of similar maturity, according to data compiled by Bloomberg. Procter & Gamble Co., Johnson & Johnson and Lowe's Cos. debt also traded at lower yields in recent weeks, a situation former Lehman Brothers Holdings Inc. chief fixed-income strategist Jack Malvey calls an "exceedingly rare" event in the history of the bond market. The $2.59 trillion of Treasury Department sales since the start of 2009 have created a glut as the budget deficit swelled to a post-World War II-record 10 percent of the economy and raised concerns whether the U.S. deserves its AAA credit rating. The increased borrowing may also undermine the first-quarter rally in Treasuries as the economy improves. "It's a slap upside the head of the government," said Mitchell Stapley, the chief fixed-income officer in Grand Rapids, Michigan, at Fifth Third Asset Management, which oversees $22 billion. "It could be the moment where hopefully you realize that risk is beginning to creep into your credit profile and the costs associated with that can be pretty scary." – Bloomberg

Wherever one looks these days the world economic picture is not pretty. But here at the Bell we ask a question that is just as significant as "can a recovery take hold?" The question we ask is whether the problems the world faces are in some sense intrinsic to the operation of the marketplace or whether they are entirely a human construct. It would be the Bell's position that the fault lies with the current "capitalist" system, which has very little to do with free-markets and everything to do with monopoly control of wealth and resources.

Who has set up the current system? We'd argue that it is mostly an Anglo-American power elite that has done so in service of a specific agenda. That agenda involves organizing and consolidating the world's fractious populations, especially in the West, via dominant social themes that centralize and enrich the elite that suggests them. The problems are always fear-based. The solutions are always authoritarian and feature organizations created by the elite itself.

In the past, elite dominant social themes have worked fairly well. But the Internet itself, and the knowledge about free-markets that it has disseminated, has infinitely complicated the elite's ability to promote its perspectives. And this is the REAL problem that the world faces today. In the past, the Anglo-American elite has faced similar difficulties – and challenges to its economic structure. What the elite has NOT faced is an unraveling that takes place during a credible communications revolution that is changing not only how people receive information but also how they understand it and even the conclusions they reach.

The Bell would argue that the current sense of paralysis gripping the world's developed and developing countries today – and the inability of the West especially to solve its financial and economic challenges – stem in large part from the Internet's impact on the social order and the resultant ability to build consensus – or not. The elite's dominant social theme insofar as it involves Western economic/central banking models is that the current system is a "terrible one" but "others are even worse." But the Internet may have undermined this and made its promotion increasingly difficult.

What the Internet has showed tens of millions is that the current system is not working for a reason. Government decisions, especially financial ones, taken by a handful of elderly gentlemen who then print paper money as they wish – causing inflation, recessions, booms and destructive busts – must not be the only viable alternative. Indeed, such a system is not even a free-market one, though those in positions of economic control continually give the marketplace lip service.

In the era of the Internet, it is not clear what the outcome will be when it comes to the struggle of competing visions. The dominant promotions of the elite are not working well anymore and increasingly people are questioning their efficacy. But that does not mean that the current system will quickly wither away or that what is put in its place will work any better. A free-market solution would certainly be preferable but in times of crisis there is no guarantee that what comes next would resemble such an implementation, even slightly.

What is clear is that the social consensus over what to do next is gradually eroding. The Internet has fundamentally changed the conversation (though you would never know it if you read the mainstream Western press). But the reality is that the elite's dominant social themes – from the efficacy of wise democratic leaders, to the "rule of law" as it is written and implemented in regulatory democracies, to the fundamental fairness of finance and industry – are all breaking down. This is the fundamental challenge faced by the West especially as the 21st unfurls. For investors, such a fundamental evolution is bound to be an unsettling phenomenon, affecting everything from stocks, to bonds, to pensions, to government-guaranteed income streams.

After Thoughts

The Bell, along with most of the rest of the free-market-oriented alternative press, has suggested that people put a portion of their savings into silver and gold – and perhaps take delivery. More than ever, in this electronic era, people will have to secure their own futures as best they can and examine the claims of the powers-that-be with increasing skepticism. Because of the Internet, and its dissemination of free-market solutions especially, there is no guarantee that dominant social themes of the elite will find the traction in the future that they have in the past. This is the fundamental issue of the current day, in our humble estimation.

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