Collapse phase of the US real economy

Please note: The Debt Rattle for February 16 can be found below

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In the 2 years of its existence, European think-tank LEAP/Europe 2020 has published a respectable number of thought-provoking reports, mostly in its subscription monthly newsletter GEAB:

The GlobalEurope Anticipation Bulletin is the confidential letter of think-tank LEAP/Europe 2020. As such, our aim is to provide our readers with state-of-the-art analyses of geo-political anticipation centered around the study and follow-up of the global systemic crisis, itself focussed on the evolution of the dollar and of the US economy, and their impact on international economy and financial markets, all that seen from a European perspective.

On Friday, 15, 2008, the latest GEAB saw the light, and parts were published on the LEAP website. It will likely take a while before an English version is available; therefore we at The Automatic Earth took it upon ourselves to translate the French version; the statements in the report certainly merit a little extra work, as well as attention.

Since the conclusions that LEAP/E2020's analysts reach in the report are, to put it mildly, more outspoken than just about any other publication, we feel they provide substantial food for thought and discussion. Are these guys nothing but a platoon of senile doomers, or are they? For more LEAP reports, go to their website.

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Global systemic crisis/ September 2008 - Collapse phase of the real economy in the US
Public announcement GEAB no 22 (February 15 2008)

According to LEAP/E2020, the end of the third trimester will mark a new inflection point in the development of the systemic global crisis. By this time, the cumulative impact of the different strands of the crisis (see table below) will reach maximum strength and affect the heart of the systems involved in a decisive manner, led by the United States as the epicenter of the crisis.

In the US, this new inflection point will translate into the collapse of the real economy, the final socio-economic stage of the bursting of the series of the housing and financial bubbles (1) and the continuation of the fall in the value of the Dollar. The collapse of the real US economy represents simply the almost complete halt of the American economic machinery: private and public bankruptcies in great number, wide ranging closures of enterprises and public services (2),...

As a forewarning of events to follow, it is interesting to note that from March 2008, the US government will cease publication of its economic indices for reasons of budgetary constraints (3).  The articles of GEAB N 2 and related alarms, remind us of the correlation between our anticipation of the fall to come in the Dollar with the end of the publication of M3 by the US federal Reserve. Here we see a new clear signal that the American leaders henceforth expect profoundly dark economic outlooks for their country.


Temporal perspective of the seven strands of the impact phase of the systemic global crisis anticipated since mid-2007 - Source LEAP/E2020, GEAB N°18 (10/2007) Click to enlarge

In this GEAB N 22, the experts of LEAP/E2020 anticipate the concrete consequences of this meltdown in the real American economy on the United States itself, and on other regions of the planet. In parallel, our team develops a series of five strategic and practical recommendations to protect oneself from the worsening of the systemic crisis of the coming months.

On the occasion of the second anniversary of the publication of its famous "Systemic global crisis warning" that circled the globe in February 2006, LEAP/E2020 wishes nothing less than to remind us that from now on we are entering a period without historic precedent. Repeatedly for two years, our team of researchers has stressed that comparisons with previous economic crises are fallacious.

It will not be in its effects a "remake" of the crisis of 1929, nor a repeat of the oil shocks of the 1970s or the stock market crash of 1987. It will be a systemic global crisis, that is to say affecting the integration of the planet and directly touching the foundations of the international system which has been the means of global organization for decades.

For LEAP/E2020, it is also edifying to note that two years after the publication of its famous "Systemic global crisis warning" which had simultaneously aroused the interest of millions of readers over the whole world and the condescending irony of the majority of the "experts" and "leaders" of the economic and financial world, everyone is now convinced that there is a crisis, that it is global and that it could well be systemic. Our team is constantly amazed at the incapacity of these experts and leaders to comprehend the nature of the phenomenon that we are living through.

To read them, this systemic global crisis would be only a sort of "classical" crisis, but "larger". This is how the financial media reflects the dominant interpretations of the on-going crisis. For our team, this approach is not only intellectually lazy but morally culpable, as it has as a principal consequence the denial of the opportunity for readers (whether they are simple citizens, individual investors or responsible private or public institutions) to prepare themselves for the shocks to come.

Thus, as opposed to what one could read these last weeks in the dominant media, always quick to try to camouflage reality in order to serve the interests which dominate them, LEAP/E2020 wishes to recall that it is above all in the United States that this global systemic crisis takes an unprecedented form (the "Very Great US Depression" as our team called it in January 2007 (7)), since it is around them, and them only, that the world which emerged from the second world war was gradually organized.

The various numbers of the GEAB largely explained this situation. To summarize, we consider it useful to stress that it is neither Europe nor Asia which has a negative rate of saving, a generalized housing crisis throwing millions of citizens on to the street, a currency in free fall, abysmal public and commercial deficits, an economy in recession and, to crown the whole, expensive wars to finance.

It will therefore be neither Asia nor Europe (more exactly ` the euro' zone) that will undergo the most brutal consequences, the most long lasting and most negative aspects of the crisis in progress; but  the United States and countries or economies strongly tied to the United States (what our experts call "American risk") (8). There is indeed a "decoupling" between the US economy and those of the other great areas of the world.

But "decoupling" does not mean "independence". It is quite obvious, as LEAP/E2020 anticipated many months ago, that Asia and Europe will be affected by the crisis. "Decoupling" means that the evolution of the US economy and those of the other great areas of the world are no longer synchronized, that Asia and Europe will move henceforth according to trajectories no longer determined by that of the US economy.

The global systemic crisis marks in fact the beginning of "decoupling" between the US economy and those of the remainder of planet. The economies not "uncoupled" will be those which will be dragged into the American downward spiral.


Steep fall in the number of self-employed in the United States - Source Office of Labor Statistics/Merril Lynch (the shaded zones represent periods of recession). Click to enlarge

Concerning the stock markets, our team anticipated as of October 2007 that the world's bourses would lose between 20% and 60% by region during the year 2008. Today, we must revise our prediction in the direction of an even larger fall since, on the one hand, the stock exchanges have in general already lost between 10% and 20% since the beginning of the year (1°), and that, on the other hand, the meltdown of the real economy in the United States by the end of the summer 2008 will precipitate a downward spiral in all the world's bourses. For LEAP/E2020, we now predict a fall of 50% on average compared to 2007 (including in the emerging markets) (11).

In this number 22 of Global Europe Anticipation Bulletin, notably with our alert to the meltdown of the real economy in the United States from September 2008, we again try to warn those who are concerned by the consequences of this major event which will generate very serious socio-political disorder in the United States (13) as the economy is collapsing (14), which will of course have very heavy repercussions throughout all of the financial and monetary markets and for the world economy. We still have not reached the heart of the crisis. According to LEAP/E2020, it will be reached in the second half of 2008.

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