Towards a world war of interest rates

aimed at capturing global savings

Published on, the newsletter of the Global Europe Anticipation Bulletin GEAB (in de, en, es, fr), 26 Mai 2009.

… What central banks following the Fed’s policy are basically trying to do is to make solvent economic players who are not and who cannot be anymore because the economic model they were based on has collapsed. Their hope is that the longer their fictitious solvency lasts (thanks to the input of large amount of liquidities) the greater the chance that the economy recovers, burying the trick.

It is smart but you don’t cheat history and the current crisis is of historic dimension. Its duration for many countries (including the US) could be similar to the duration of the 1873-1896 crisis, while its socio-economic impact will resemble that of the 1929 crisis but on the scale of the planet (9). 

The strategy invented by the US and UK central banks is leading to a disaster because once it becomes obvious to everyone that the crisis is there to last far beyond 2009 (our team anticipated that this new tipping-point would occur around March 2009, see GEAB N°30), the insolvency of the private and public players concerned will be impossible to conceal, and the thousands of billions swallowed in this liquidity supply will turn into explosive debts for the States and central banks which created them …

(follows a chart of 19/12/2008)

… Practically speaking, governments should stop thinking in terms of recovery or stimulus plans because there is no solution of continuity between yesterday and tomorrow. Instead they should set up crisis cross-over plans concerned about protecting most-exposed populations (unemployed people or people likely to lose their job soon) as well as sound economic actors (no debt and a sustainable economic model for the years to come), and about supporting new socio-economic processes, very different from what the world used to know in the past two decades.

Observing the language used by our leaders can help identifying the moment when the most clever ones will finally understand what sort of a crisis this is. In 2009, unfortunately, LEAP/E2020 has no illusion: prepare for a dangerous cocktail of inefficiency, reality denial, and overbidding, all this in a context of rush to what global saving will be left! (full text).

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