Saturday, February 16, 2008

Collapse phase of the US real economy

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

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.

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.


Anonymous said...

That's the news I've been waiting for. Celebrations all round. Bye Bye Yankees, Everyones had enough of your hegemony by violence, vainglorious delusions of grandeur, arrogantly blessing your nation as synonymous with God's name. Go forth and collapse into anarchy, make the best possible use of all those handguns you've got laying around - buy hollow point rounds.

Anonymous said...

Wow, what an article. Thanks very much for bringing this to light.

I posted an article at Tod regarding Putin's threat of retaliation if Kosovo declared independence (which they are due to do tomorrow). Might be something to keep an eye on IMO.

Here's the link to the newspaper article:

Anonymous said...

Thanks for this article and the link to the website.

I've gone back through the English language section of Abstracts& stories and read several of the articles listed there. There are about 3 pages of them from early 2006. After I read several of these articles, I read a lot more of them!

It's like reading a history of economic and some political things that have happened in the past two years! Yikes--this is an eye opening website. Actually, YOUR website is pretty eye opening, too.

thanks so much for your website and the work you're doing here.

A reader from TOD,


Anonymous said...

Thank you for the translation. I don't find LEAP's overall prognostications far-fetched, but I do find them rather vague. I wonder where they are getting their "currency in free fall" idea from. Seems like in a deflationary environment the currency would strengthen? Maybe just not relative to an also strengthening euro.

Also re the decoupling, it's interesting that the article makes such a strong effort to emphasize that the U.S. is the epicenter of the crisis, and that decoupling will spare some other parts of the world, which will only be "affected" (no further explanation) by the crisis. I must beg to differ... The UK is probably in deeper shit than we are. I think it's just not PC for French intellectuals to not try to blame whatever the problem is on the U.S. We didn't inflate Spain's housing bubble, or Greece's. Europe is going to get rocked. The only decoupling happening in Europe will be between bank depositors and their money...

I think the excess of the past few years was so massive that it's easy to cut a lot of it out and still live a comfortable life. Unemployment will definitely skyrocket and banks will fail and so on, but what it ultimately all leads to is an economy more in line with reality. The transition will be more painful for the spoiled, less so for the lean. Yes a lot of turmoil is on the way, but we are already so massively socially fucked up as a nation that it will be nothing new for us. We will stagger through like the drunken deaf idiots we are.

Anonymous said...

Anything more on this; "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."

Anonymous said...

Their recommendations start on page 15 of their (for subscribers) report:

"Five strategic and operational recommendations to be protected from the aggravation of the crisis
Stocks or bonds?
The recognition of a new « American risk
The new safe heaven currencies
Real estate: Selling, keeping or buying ?
Risking less for losing less (page 15)"

Farmerod said...


Wow, what an article. Thanks very much for bringing this to light.

I'm not trying to be a jerk but what did you find particularly intresting in the article?

Anonymous said...

Some of their predictions made a year ago:

In April 2007, nine practical consequences of the unfolding crisis will converge:

1. Acceleration of the pace and size of bankruptcies among US financial organisations: from one per week today to one per day in April
2. Spectacular rise of US home foreclosures: 10 million Americans out on the street
3. Accelerating collapse of housing prices in the US: - 25%
4. Entry into recession of the US economy in April 2007
5. Precipitous rate cut by the US Federal Reserve
6. Growing importance of China-USA trade conflicts
7. China's shift out of US dollars / Yen carry trade reversal
8. Sudden drop of US dollar value against Euro, Yuan and Yen
9. Tumble of Sterling Pound

No. 12

doctorbob said...

I think the lesson from this is that changes happen rather more gradually than some would expect. There is a lot of inertia in the economic system and it takes a long time to turn around in either direction. Changes to "boom" are relatively slow and the coming "bust" will happen over years rather than months - but happen nonetheless.

Anonymous said...


I tend to agree with ITS above.

Interesting but rather vague article.

A few points.

Concerning the free fall of the dollar, they did say currency, not money, meaning with respect to other (foreign) monies.

I agree that though the U.S. is certainly the epicenter and significantly responsible (e.g. the subprimes), it is not alone. A good part of Europe and Asia followed suit and so will suffer. But I am not sure why everyone thinks the U.K. will suffer so terribly.

Concerning turmoil, if this article is at all accurate, the situation will exceed turmoil. I am not sure how to qualify it, but it will be a shock.


doctorbob said...

I was going to add (in relation to points listed by "Anonymous" above):

1. Acceleration of the pace and size of bankruptcies among US financial organisations: from one per week today to one per day in April - NOT TO THIS EXTENT YET.
2. Spectacular rise of US home foreclosures: 10 million Americans out on the street - STEADY RATHER THAN SPECTACULAR.
3. Accelerating collapse of housing prices in the US: - 25% - SOME RECENT DATA ON THIS SITE SHOWS DROPS OF UP TO HALF THAT SO FAR, VARYING FROM STATE TO STATE.
4. Entry into recession of the US economy in April 2007 - DE FACTO RECESSION NOW, PROBABLY OFFICIAL BY SUMMER '08.
5. Precipitous rate cut by the US Federal Reserve - PARTLY SO NOW, PROBABLY APPLY BY SUMMER '08.
6. Growing importance of China-USA trade conflicts - JUST A FEW MINOR SPATS SO FAR.
7. China's shift out of US dollars / Yen carry trade reversal - MINOR AS YET.
8. Sudden drop of US dollar value against Euro, Yuan and Yen - SIGNIFICANT BUT NOT HUGE DROP.

Overall, I'd expect "trauma months" like January '08 to happen every 3-6 months for rest of this year and expect the real crisis to hit in the second half of '09.

Anonymous said...

Outtacontrol, to me the report clearly states what it expects to see happening, rather than just what is happening now. As someone trying to steer a path through the coming storm I find this clarity useful. Also the fact that it gives a European perspective to the global crisis.

For example, I believe that Europe needs to turn its back on the US (ie decouple as the report puts it) and look east towards Russia for its future and security. Which is one of the reasons I left the highly US integrated UK (which I expect to go down with the US) and moved into the Euro zone (France). It also means the removal of the existing European elite by a new Eastern friendly one. This report seems to be contemplating the very same things which is refreshing and their additional insight is very welcome.

We are facing profound changes and anything that throws light on these changes is of great importance IMO.

Farmerod said...

Thanks Burgundy

For what it's worth, I've learned enough about this impending financial disaster, peak oil, climate change, geopolitics etc that I am in full lifestyle-liquidation mode. I've dabbled with lifeboat construction over the last couple of years but, for me and my family, it's time to take it up a notch. Why? Because this whole thing could unwind nice and gracefully like it has been over the last year or so but Stoneleigh's thesis that it will eventually crash makes a lot of sense to me. When all confidence is lost, there may very well be only a few options available to those, like me, who currently have a reasonably high net financial worth on paper but who could suddenly find themselves with $100k+ mortgage, an overvalued house they can't sell, a once rich DB pension that has now imploded...and maybe no job.

What I'm trying to say is that it's going to be really hard to put hard and fast times to every stage of this implosion. TPTB have lots of cards to play. But I will not assume that my local, provincial or federal governments have my best interests in mind or, if they do, that they will do the logical thing.

I've seen enough and I'm getting out.

Anonymous said...

burgundy: to me the report clearly states what it expects to see happening

may be a little bit of conscious or unconscious wish on top of the expectations? the same group also predicted that in a generation or so, English will not long be an European language much less an international language.

it is hard to think long range. it is harder to put a long range thinking into a proper perspectives - time wise and degree wise. in a complex nonlinear dynamic system, an minute factor or even a different initial condition can lead to qualitatively different trajectories.

Anonymous said...

"Every issue is coordinated by Franck Biancheri and mobilises the totality of our research teams"
GEAB--Global/European Anticipation Bulletin.

Who is Franck Biancheri? He's trying unify Europe by starting a political movement.