GEAB : Systemic Economic Crisis: The Sequence of Global Insolvency Begins

• This financial crisis is unlike others in past recessions. It is a crisis not of liquidity but of insolvency. The EU, North America and Japan is largely bankrupt. Anglo Saxon economies are bankrupt at many levels : national bankruptcy, corporate bankruptcy…. to individual bankruptcy. I am not saying that everyone is bankrupt, I am saying that a significant portion is. And the effect is such that economy has plunged headlong into depression.
   
• When a corporation is bankrupt and their business model is no longer profitable, it does not make sense to bail them out. The old saying of : throwing good money after bad holds true. Unfortunately, most Western governments have opted to do just that. Did the earlier bailout of banks in America worked?? Why is Bank of America asking for more money now? Why is CitiGroup toppling? Many have commented that this bailing out of the financial sector is a black hole. I agree !
   
• Central Banks, like the FedRes, have been flooding the market with money via monetary policies: low interest rates. And has gone into Quantitative Easing ( Just another way of saying printing money out of thin air). Is this working? Apparently not. Economy has gone into an alarming dive worldwide. The velocity of money in America has become less than 1.0 . This is terrifyingly alarming! No exaggeration.
   
• The problem has never been liquidity which all these actions taken are trying to address. The problem is insolvency! Will you, should you lend money to a corporation or individual that is bankrupt? Common business sense say No ! But governments think that they should. The point in time is coming when governments will realize the futility of it all and abandon such corporations. Too much liquidity, too easy money, too lax lending policies are the causes of the meltdown. But governments still believe more of the same will work. Wake up time is coming !
   
• GEAB in its latest forecast/analysis Phase IV of the systemic crisis: The sequence of global insolvency begins says :
   
  Contrary to what political leaders and their central bankers seem to believe worldwide, the problem of liquidity that they are striving to solve by means of historic interest rate drops and unlimited money creation, is not a cause but a consequence of the current crisis. It is in fact a problem of solvency which is digging « black holes » where liquidities disappear, whether we call these holes bank balance sheets (1), household debt (2), corporate bankruptcies or public deficits. In consideration of the fact that a conservative estimation of these “ghost-assets” reaches already USD 30,000-billion (3), our team considers that the world is now facing a situation of general insolvency affecting in the first place the most indebted countries and organizations (public or private) and/or those depending most on financial services.
  
   
  

  US daily bankruptcy filings (01/'2006' – 11/'2008') - Source: CreditSlips, 01/2009

According to LEAP/E2020, this simple example illustrates perfectly the situation prevailing today throughout the entire global financial system, a large part of the world economy and all the economic players (including States) who based their growth on debt in the past years. The crisis translates and magnifies a problem of global insolvency. The world is becoming aware of the fact that it is a lot poorer than it used to believe in the last decade. And 2009 is the year when all the economic players must try to assess their real level of solvency, knowing that many assets are still losing value. Moreover a growing number of investors no longer trust the traditional instruments and indicators of measurement. Quoting agencies have lost all credibility. The US Dollar is just a fiction of international monetary unit and many countries are striving to get away from it as quickly as possible (6). Thus, quite rightly, the entire financial sphere is suspected of being a giant black hole. Concerning companies, no one can tell if their order books are reliable (7) because in every sector customers cancel their orders or just stop buying, even when prices are discounted, as indicated by dropping retail sales in the past few weeks (9). Concerning States (and municipalities), slumping fiscal revenues are likely to result in even higher deficits and then bankruptcies. As a matter of fact, Russian billionaires (10), Gulf oil-monarchies, Chinese commercial Eldorados (11), all the « golden-egg geese » of companies and financial institutions of the planet (namely European, Japanese and North-American ones (12)) turn out to be insolvent or hardly solvent. The question of the solvency of the US federal State and federated states (13) (as well as of Russia or the United-Kingdom) is beginning to be asked by some big international media; as well as the question of the solvency of large capital-based pension funds, major players in this past twenty years’ globalised economy.

• So what are the consequences as governments worldwide realized they are bankrupt? Fiat currency will be under threat. Starting with USD, British Pound….. and so on. Stock markets will collapse because most of the blue chip companies are bankrupt. Banks will collapse. Deflation will turn to hyperinflation. Gold should soar.

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