Fasten-Your-Seatbelt, Financial Markets Heading For Heavy Turbulence
By: DK Matai
Aug 29, 2012
For every one corporate executive distinguished member of the ATCA 5000, who expects the global economy to improve over the next 12 months, there are at least two senior executives who now expect the global economy to get worse over the coming 12 months. In the aftermath of the Beijing Olympics, four years ago, Lehman Brothers collapsed in mid-September 2008. Are we heading for a similar outcome in the autumn or fall of 2012 post the London Olympics? The last few months of 2012 could really mark a major inflection point in the next phase of a global systemic crisis and the inadequate solutions proffered by those in authority to address the crisis so far. Sadly, we have never even come close to recovering from the last global financial crisis which began in August 2007 and this next crisis might — should it arrive in late 2012 — end up being even more painful than the last one. Having said that, there’s a clear top 5% of beneficiaries from the last global financial crisis who have profited from quantitative easing and other monetary and financial policies to the detriment of the remaining 95% who have by and large seen their disposable income go down whilst inflation has ratcheted upwards.
Are there specific reasons why we should be collectively concerned about what is coming towards the latter part of 2012? Yes, the ingredients for a “perfect storm” are slowly coming together, and in the next few months we could very well see the next wave of a massive financial correction with the potential for a further economic downturn. A recent IMF research paper by Luc Laeven and Fabián Valencia showed that a banking crisis is far more likely to start in September than in any other month in any given year. Historically, a global financial crisis is much more likely to begin in the autumn or fall than during any other season of the year. For example, the stock market crash of 1929 began in late October. “Black Monday” happened on October 19th, 1987 and the major global financial crisis of 2008 also started in September-October. Further, one increasingly finds the following asymmetric threats buried almost on a daily basis underneath the “Business-as-usual” newspaper headlines:
1. Fall-off in International Trade, Global Recession and Rising Unemployment: There is no obvious engine of global growth visible anywhere — neither in emerging markets like China, India and Brazil and nor within Europe — and the myth of the robust “US recovery” is fast being exposed as a fallacy. In the last few years, the Eurozone has gone through a crisis-of-confidence of an intensity and depth unrivalled since the beginning of the European construction project after the Second World War. In the coming weeks and months, all the major powers of the world — including the US, China and Japan — may have to face an identical process of reckoning as global demand tails off sharply. Inability to control or slow down rising long-term unemployment is a major contributory factor to falling global demand for products and services and rising need for government spending programmes. This chasm exposes the failure of monetary and fiscal policies that are based on “pure austerity” measures to stimulate growth.