We Who Live In Economic Glass Houses
While almost everyone on Wall Street hypes stocks, and the proponents of globalization continue to sing from their hymnbook, I have thought for a long time that all this economy will suffer a great crash.
I am not alone. Recently the highly respected Royal Bank of Scotland (NYSE:RBS) published a report which warned investors that we are on the brink of one of the worst stock and credit market crashes in 100 years. The author, Bob Janjuah, former Senior Credit Strategist at the Royal Bank of Scotland said “a nasty period is soon to be upon us – be prepared.”
His report was covered all over the world and sent shockwaves. He called for the S&P index to plunge by as much as 600 points and “all the chickens come home to roost” from the excesses of the global boom.
The U.S. media seemed to ignore the story.
Janujah warned the meltdown would spread across Europe and emerging markets, ushering in one of the worst bear markets in the last century. At the heart of this meltdown, he said, are skyrocketing energy prices that are fueling inflation and paralyzing the world’s major central banks. He said that cash is the key safe haven.
Lately, I have been conducting a little research to see if indeed I am alone or there are others, many more skilled and prominent in the economic analysis business than I ever could be, who are foreseeing the sky falling. Falling it may not – yet, but the prospect of a sudden rift to our North American economy and also that of the world now seems to me a real one. Who are these people and what are they saying?
In his book, “The End of the Line”, Andrew Leonard believes that globalization has made the United States too dependent on foreign companies – dangerously so – and sees “imminent disaster looming.”
While he pronounces his opinions on China’s involvement and former president Bill Clinton, the real value of his book lies in his coherent and fascinating explanation of how the “flexibility and interconnectedness” that are “fundamental building blocks of the global economy” are instead producing rigid ness and vulnerability that forms the actual “Achilles’ heel” that will finally bring down the current economical apparatus. The inside scoop of what’s really happening out there.
Interestingly, there are a wide variety of supporting opinions ranging from the BBC to Internet news blogs. One details five reasons why the economy will crash and stay crashed! And not recover for decades. Those five are the weak U.S. dollar, the popping of the U.S. housing bubble, terrorism, long term prospects for accessible oil and the so-called generational problem that has a disproportionate old population increasingly being supported by a shrinking younger, shrinking working population, all resulting in “decades of high inflation, high taxes and high political turmoil.”
Not to be outdone, there are many “faith ministries” who have pounced on this subject. One called “Activated Ministries” in the USA promises that the current global economic problems will only be solved when a “financial superman” arrives to save the day, even predicting that this savior will be the Antichrist as the Bible prophesies.
But, what scares me were the confessions of a renowned former member of the international banking community who once wrote an eye-opening book called Confessions of an Economic Hit Man. John Perkins advances a U.S.-led international conspiracy by claiming that through his job as chief economist of Boston’s Chas. T. Main, he helped to engineer multi-billion dollar loans to third world countries like an Indonesia or an Ecuador that were designed to benefit a few large U.S. companies like a Halliburton or a Bechtel to build that country’s infrastructure that would tend to benefit only a few of that nation’s very wealthiest families while saddling the borrowing nation with “amazing debt that the country couldn’t possibly repay.” He claims that the U.S. government is still pursuing this same philosophy.
To more fully understand the dire results when the markets crash, Maury Klein, professor history at University of Rhode Island, notes that the combined collapses of the stock market and economy of 1929-1932 fed on each other and turned American citizens’ “first feverish love affair with the stock market into a lasting aversion” that only eased when trading volumes reached 1929 levels again in 1952.
She contends that crash destroyed a promising Herbert Hoover presidency and facilitated the fall from power of the Republican Party, which became the minority party for the first time since the 1850’s and did not regain the White House until 1952. The crash also encouraged a monetary policy that may have been the single most important factor in prolonging the depression, says Ms. Klein.
As government continued to make war on inflation, its traditional enemy, Ms. Klein asserts that deflation had emerged as the biggest threat. Banks failed. Jobs disappeared. Companies closed.
Overseas, this collapse led to the coming to power in Germany of Adolf Hitler as well as other extremists.
U.S. President Franklin D. Roosevelt’s presidency’s imposing legacy was the rise of big government – which still dominates today – and far-reaching federal intervention in the national economy. This intervention led to the creation of original federal social programs and federal regulation of Wall Street institutions.
Does this all sound familiar today? With the world’s poor nations clamoring for structural reforms, both Canadian and U.S. jobs transferred to third world countries, increased government interventions in social policies and programs, and with more street violence involving youth, can we safely say that we are comfortable living in our economic “glass houses?”
Mark Borkowski is president of Mercantile Mergers & Acquisitions Corp. Mercantile specializes in the sale of privately owned mid-market companies.