STAFF NEWS & ANALYSIS
Three Macro Trends You Need to Watch
By Staff News & Analysis - June 10, 2011

The world is seemingly under stress from almost all sides. Lets take a look at a couple of the cross currents in the world, some of which no one is talking about yet. While the US has real problems, we forget that the rest of the world is actively faking it, or worse is starting to break apart at the edges. – Business Insider

Dominant Social Theme: Flying under the radar … Three trends we don't want you to notice.

Free-Market Analysis: Business Insider's Jack H. Barnes, a former trader and hedge fund manager, has written an article entitled "3 Cross Currents in the Global Macro World." We thought we ought to examine it because we've mentioned these "cross currents" ourselves within the context of elite dominant social themes. Barnes bills himself as a macro-contrarian, whatever that means, but his three currents are easy to understand and defined clearly.

Begin with China. That huge country has now launched a US$400 billion program to fund its shaky municipal governments. Barnes is bemused by the lack of reporting. "Almost no one seems to have noticed or commented on the size of their own internal TARP program," he writes. "The fact that China is bailing out their city governments, should be indication of what is happening below the news fold, as it were. The reality is that even China is feeling the global slowdown pain."

Barnes is somewhat admiring of the actions the actions the Chinese have taken. He suggests that unlike Western governments, "they don't spend a lot of time in public wringing their hands. They knew they had an issue and took action." It is in fact a huge bailout when one considers that the Chinese economy is only about one third the size of America's. This means relatively speaking that the money amounts to US$1.2 trillion, almost double the size of the US TARP.

Barnes concludes that Chinese municipalities (where most of the bailout funds are directed) are now in a better position to weather the "coming storm." We're not so sure about this. Municipal indebtedness is related to another under-reported phenomenon in China, which is a real estate crash.

Of course, we began to write about Chinese inflation about two years ago, and at the time we figured the Chinese would raise interest rates significantly. Guess what – they have. And what's the result? Well, just like in the US a while back, higher rates have popped the real-estate bubble and caused Chinese municipalities to crash as well. What's next on the agenda? A "landing" of some sort. Wanna bet it will be a soft one? We'll take offers. We're wagering on the hard kind.

Trend two according to Barnes is an upcoming war with Iran in the Middle East. We've actually been writing about this quite a bit (see other Staff Report today). Barnes has a twist, though, and it's an interesting one. "You only have to look at the latest OPEC meeting to see between the lines," he writes. "Iran and Saudi Arabia have drawn lines in the sand, and sides are being taken."

This is a novel interpretation of what's going on. Barnes has the idea that Saudi Arabia may act as a military proxy for Israel and the US. Interesting. He thinks the war has already begun from a military standpoint. Here's how he puts it: "It is my expectation that Saudi will now try to flood the world with oil, to drive down the Iranian revenue available to fight a war with Saudi Arabia. This will be a rerun of the end of the Soviet Union, when Saudi Arabia helped to drive prices of oil down to $10 per barrel."

Barnes sees a tremendous level of animosity between Israel and Iran, but he would add in Saudi Arabia as well. "[The lack of agreement] makes me wonder if a joint Israel/Saudi war on Iran isn't in the making." That's not a scenario we ever envisioned, but it is perfectly possible that the Saudis would end up on the side of Israel in a large Middle Eastern conflict (even in an unstated way). The Saudi Sunnis and Iranian Shias have no great love for one another and Saudi Arabia could not exist as the theocratic dictatorship that it is without Western support.

What's his third big trend? The EU of course and sovereign risk. Here again, he takes an interesting angle, pointing out that the IMF has gone on record with the statement "that it does not plan on releasing new funds until there is a major change in the Greece asset to capital loan mix." The next tranche is due in July, and Barnes points out that Greece's government will again be all but bankrupt by then – "without working capital" is how he puts it.

What are the ramifications? "A hard and fast deadline for reality to break out." Greek officials were supposed to raise some funds on their own in addition to the IMF tranches. But because the markets have generally shunned Greece, the gap between what the IMF has provided and what Greece needs has continued to grow. Either additional capital is made available or Greece goes broke, and sooner rather than later.

It gets still worse. The European Central Bank itself is the lender of last resort, but there is no way the ECB can handle a Greek default because it will inevitably entangle the rest of the PIGS. Now who or what does the ECB call on when it needs cash? Why the entirety of its national membership!

Here's our question (and Barnes'): When the ECB goes cap-in-hand to Germany (and Chancellor Angela Merkel) for a large capital infusion, what will the answer be? The Germans are very obviously unhappy now; we cannot envision the grief (and rage) if the Germans are asked to refinance the entire Union. Barnes puts it this way: "The ECB is in a game of blind man's bluff, with no exit strategy and a ticking clock."

We like this article! It touches on three great dominant social themes that we've covered in the past. (China as the navel of the world; Middle East as flashpoint of World War III; and the EU as the second-and-necessary-coming of the Holy Roman Empire.) Barnes updates them with what we would term "insightful brevity."

Let's summarize. China is the engine of the world, but we've long predicted that inflation would be that economy's undoing. If China is beginning its long (or short) collapse into a hard-landing, what does that mean for the rest of the world? We've also begun tracking the Middle East far more closely because of these phony (Western influenced) color revolutions. We think the Western elites have hit a wall insofar as their efforts to create near-term global governance. With the world spinning out of their control, the answer may be a larger war. The Middle East is a good place to start it.

Finally, there is the issue of the European Union. The Anglosphere elites are fighting desperately to save the euro and the EU in our opinion. We do believe the power elite has wanted to create a financial crisis not only in the West but around the world. They DO want chaos – but they also don't want their regional fiefdoms to fall apart. These are the stepping stones to a One World Order after all.

The world economy is bad enough, and a China crash will make it worse. We don't think Western elites are in favor of a crash at this point in time, given the breadth and depth of the current "recession" (which is actually a depression). As we've pointed out in today's other article, a war may be the only way to distract restive Western citizens from what's already taken place. The question becomes how to start one and who's going to be involved. The elites continue trying to bail out the leaky EU boat, but we're not sure that's going to be effective.

Taken together, a China crash, a regional war (perhaps nuclear) and the imminent, potential breakup of the EU presage what the Chinese like to call "interesting times." Are we imagining any of this? The near-term deadline appears to be the EU. But a EU collapse could place further pressure on the Chinese economy, leading to a "landing" of some sort sooner rather than later. And as further financial chaos sweeps the globe, Western elites might well turn to the tried and true tool of military engagement to keep control of the internationalist institutions they've already built.

This is a variant of the scenario that we think took place during and after the Great Depression. The difference is that people are much more informed now due to the Internet. We've been banging this drum for years, but we don't see any need to stop now. There is plenty going on – much more than Barnes mentions – and a good deal of it bodes ill for elite control.

After Thoughts

The 20th century was a kind of Dark Age so far as we are concerned, when the elites were pretty much in charge of the levers of control. The 21st century, despite these three grim trends, portends, perhaps, a potential Renaissance and Internet Reformation. This is a "current" too.

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