Is All Hell About to Break Loose?

Economic order as we know it is about to radically change.  The failure of the recent G20 summit in Korea left every economy on its own to cope – and each will act in its own best interests.  Further evidence of this opinion surfaced in the NYT’s article Beijing’s Focus on Food Prices Ignores Broader Inflation Risk.

Zhou Xiaochuan, the governor of the central bank, had said earlier on Tuesday that the amount of money racing through the global economy was putting pressure on emerging economies that want to control inflation. And Yao Jian, a commerce ministry spokesman, said at a press conference on Tuesday that the government would tighten scrutiny of foreign investment so as to prevent too much money from pouring into China as foreign investors seek higher returns than are currently available in the West.

Imposing price controls and other administrative controls on the Chinese economy runs counter to the steps recommended by many Western experts. They have suggested that China should further deregulate its economy, let the renminbi appreciate and otherwise rely on market forces to tame inflation.

Exactly why should China do anything not to their advantage?  The world’s biggest consumer country – the USA – no longer has any options to control its own monetary policy due to its weak economic strength AND its inability to produce many strategic products.  A trade war would pull whatever rug is left from under the US economy.

My view is reinforced by GlobalEurope Anticipation Bulletin 49 (GEAB) from think-tank LEAP/Europe 2020.

The world is indeed in the throes of the global geopolitical dislocation that we had announced as beginning at the end of 2009 and which can be seen, less than a year later, in the proliferation of movements, the economic woes, the fiscal deficits, the monetary disagreements, all setting the scene for major geopolitical shocks. With the G20 summit in Seoul, which signalled to the planet in its entirety the end of US domination of the international agenda and its replacement by a generalised mood of “every man for himself”, a new phase of the crisis has begun, prompting the LEAP/E2020 team to issue a new warning. The world is about to breach a critical threshold in this phase of global geopolitical dislocation. And as with every breach of threshold in a complex system, this will generate, as from the first quarter of 2011, a suite of non-linear phenomena: developments that do not conform to the usual rules and the traditional projections, be they economic, monetary, financial, social or political.

This bulletin concludes:

……this accumulation of events, centred round a G20 summit that was patently incapable of resolving the sources of economic, financial and monetary tension between its principal members, contributed to a decisive advance in the world’s collective awareness of the process of global geographic dislocation under way. And in its turn, this increased awareness will, as from the beginning of 2011, accelerate and amplify the changes affecting the international system and our various societies, generating non-linear, chaotic phenomena such as those described in this issue of GEAB and previous issues. As we emphasised in September 2010, we focus on the fact that chief among those phenomena will be the entry of the US into an austerity phase, beginning in spring 2011. But we also bear in mind that one of the surprises of the next eighteen months could simply be the announcement that the Chinese economy had overtaken the US economy as from 2012 as the Wall Street Journal of 10/11/2010 indicates in its report of the Conference Board’s analysis.

US political gridlock is simply the icing on the cake.  Just at the time the USA is facing serious global economic turmoil, it now lacks the political ability to respond.  Those that can will profit from the new order.  A very good question is who and how?

Is the title of this piece prescient?  Or will all hell not break loose but will the dragged out pain simply feel like hell?

Related Articles

Losing the Battle, Winning the War  by Menzie Chinn

What Happens if Chinese Growth Slows?  by Michael Pettis


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