Britain is winning the race into the double-dip as our exports fall and production and GDP falter for the second quarter running, and the trend is downwards
While our athletes keep the gold at home at the Olympics, it has conveniently distracted the world’s attention from the perfect storm building up for the future. Britain is winning the race into the double-dip as our exports fall and production and GDP falter for the second quarter running, and the trend is downwards. The reason is simple: the rest of the world is falling as well.
We start with the no-hopers stuck inside the eurozone, a fate akin to being locked up in Alcatraz for the duration, namely Spain and Italy. The proud Spanish are on holiday contemplating the ignominy of requesting a bail-out, with Mario Monti of Italy egging them on to do just that in the vague hope that it would somehow stop the rot of euro-contagion lapping on the shores of the Adriatic.
If Spain does make the request – the only alternative is to leave the Euro and blow up the single currency – then it is more likely that Greece will not be saved, despite all the EU protestations to the contrary.
But it has just got worse in the euro-core as well: France is now in recession too, and Germany is not far behind, as its PMI shows order books fall too, with China hitting the buffers of recession, and suddenly and unexpectedly is confronted with deflation. The US is still stuck on stall speed as its election looms and no investment decisions are made.
Japan, meanwhile, continues its hara-kiri dance of death with deflation and zero-growth in the last chance saloon of the Kabuki Theatre, as it seeks to rival The Mousetrap in the longevity stakes.
There are two self-feeding loops going on here. The first is that Europe is heading for a no-growth future, closely followed by the US and the BRICs. This is not what the world’s leaders bargained for, but then they are not subscribers to Spear’s, where these trends have been self-evident and discussed remorselessly for the last five years.
No growth means high unemployment and civil disorder, but worse than that it means a complete inability to repay sovereign debt – as in Greece, Spain and many others to come. The world is inevitably headed over the next five years for a succession of contagious sovereign debt crises, which can only end in hyper-slumpflation.
The second self-feeding loop is the ongoing banking crisis, especially in Europe and now in China too, all originally caused by overheated and collapsing property markets. The trouble in the eurozone is that the French and German banks are into the PIGS up to their necks, as Hollande and Merkel fight to save the eurozone in order to save their own banks but, naturally, they dare not tell their electorates that. The very idea of having to save their own banks would tip them both over into a sovereign debt crisis as well, and so on.
Slowly the northern euro-core leaders look towards Mario Draghi, the Leporello of the ECB, who is only too happy to ape the Bernanke and swamp the world with billions of euros to bury the problem long enough for all of them to secure their pensions and/or re-elections.
Yes, the conditions for global hyper-slumpflation are slowly building up everywhere, but the central banks and politicos have no answer to the real problem of zero growth. It is time for gold to come into its own, once again.