As I reported in my last blog, a major economic crisis is approaching. My estimate is that it will hit the US by the end of the year, the shortly thereafter the UK, especially if we have a "NO DEAL" Brexit, which is looking ever more likely. That should be pretty clear by New Year 2019. Bust and booms always go in regular cycles - and it is exactly ten years since we had the last collapse because of greedy banks. But this time the only ones to benefit will be the banks - it will be more like 1992, but even worse because the level of debt in the US and UK (but not in Germany or China, which both have surpluses) is much higher than 1992. Thousands, perhaps millions will lose their homes because of accelerating interest rates, particularly if they have interest only mortgages. Thousands will lose heir jobs. After 2019 the crisis will spread to the rest of Europe and then China, because China depends on us in the west as its major export market.'
The first sign of the coming crisis is in Argentina. This is what the Financial Times says today:
"In discussions with Christine Lagarde, the IMF managing director, Mr Macri discussed a precautionary credit line that Buenos Aires could access to shore up its currency and stabilise debt markets. Bloomberg News reported he was seeking a $30bn credit line. The talks occurred as the peso plunged more than 5 per cent to a record low of 23.10 peso to the dollar, taking its decline in the past eight trading days to 12 per cent in spite of the central bank’s spending $5bn in reserves and raising interest rates to 40 per cent on Friday. Mr Macri’s announcement gave the currency a brief reprieve, allowing it to recover to 22.30 peso. “This will allow us to strengthen our programme of growth and development, giving us greater support to face this new global scenario,” Mr Macri said. Ms Lagarde put out a statement calling Argentina "a valued member of the IMF”. She said: “Discussions have been initiated on how we can work together to strengthen the Argentine economy and these will be pursued in short order.” 12% Peso’s decline in the past eight trading days despite the central bank spending $5bn in reserves and raising rates to 40 per cent Simon Quijano-Evans, EM strategist at Legal & General Asset Management, said the IMF programme was likely lead to a further fiscal tightening in a country that has already been working through Mr Macri’s more gradual austerity programme."
But the crisis is expected to spread. Again today BORSEN, the Danish financial paper reports:
“Market fears open run on (developing Countries) currencies”
"The nervousness for a global downturn similar to 2013 with an active run on shares and currencies in a series or new economies is spreading in financial markets…...The recent stimulus for such forecasts was the fear that interest rate rises will begin in the USA (after being at historic lows for many years) because of an over-stimulated economy, and rising inflation. The boom in America has also led to the increased value in the dollar against these currencies, which will be reinforced by future interest rate rises. The fall in currencies such as the Argentinian pesos may also have local origins, but the fear is the disease of falling currency values and subsequent raising of interest rates to defend the pesos will spread to other countries whose economies are stalling. Countries such as Russia, Brazil, Mexico, India, the Philippines, Turkey and South Africa. And if there are problems in one land, it is more likely to spread to others.” In fact all of these countries’ currencies have fallen by between 7% (Brazil) to 10% (Russia) and 12% (Argentina) since 1st April - that is just 38 days!
Why should we be concerned? Well first these countries form a major part of the European and British export market. If their economies fail, they will stop buying our goods. Then our economies will also be dragged down. Secondly, the boom in the States, which is partially causing these new economies' currencies to decline because of the strong dollar, is a fake boom, created by a fake President: USA is suffering the biggest debt crisis of its history - it has an unsustainable level of debt that will take generations to pay back. But the President is making it worse by giving away millions in tax breaks, mostly to the rich. This stimulates the economy, but only for a short time. The dollar is predicted to fall by about 7% by the end of the year against other major currencies - except the pound (Borsen/Nordea Bank expert Anders Svendsen). It may fall much more quickly if Trump is thrown out of office because of Putingate. Political uncertainty will lead to economic uncertainty, and an already jittery market will crash, with raised interest rates in the States to defend its own failing currency. This could happen before the end of this year. Add to this the uncertainties of Brexit, particularly on an already weakened British economy, and we have the perfect scenario for the pound to fall in value too against the euro, the yen and the Chinese nimbi, all MAJOR trading partners (plus the US) - which will lead to a sudden increase of interest rates, perhaps by April next year, to as much as 15%. A no deal Brexit (which is looking ever more likely) will make this an even greater certainty. Thus 1992 all over again, and thousands maybe millions losing their homes in the UK.
Can we avoid this? The answer is no, precisely because the major financial papers are already predicting it. This becomes a self-fulfilling prophecy. People taking notice will sell shares, buy safer currencies and gold, and sell houses. Many European & International companies and personnel will move out of the UK altogethe, reducing house and commercial property prices in London but boosting the French and especially the German economies. Frankfurt will replace London as the financial centre of Europe. So the euro will rise in value against the pound, enforcing ever higher interest rates to defend it.
It is called the domino effect!