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The Unfinished Empire, World Financial Markets Hibernating

Stock-Markets / Financial Markets 2011 Jun 23, 2011 - 12:43 PM GMT

By: Andrew_McKillop

Stock-Markets

Best Financial Markets Analysis ArticleWAITING FOR MIRACLES - , early this year: their unfinished business is on the back burner. Brokers and operators, in summer operating mode, only trim and adjust positions while awaiting new or decisive global events - which by market folklore only happen in September or October but before then, in fact permanently, they need miracles.


The current European version of needing miracles is called Greece. The country should in theory sell enough national assets, squeeze more consumers and businesses, rake in extra taxes and start getting ahead of its snowballing debt, at a frankly miraculous rate which has never been achieved anywhere else, ever. Since miracles have a way of not happening, it could be considered that Greece is lost and go on from that likely fact, to asking if the euro money and European economy are another miracle. The surprise conclusion is a shock. Defying gravity and common sense, the euro is probably a miracle that never happened: it was a short-run attempt at creating a money as unreal and artificial, as hollowed-out and virtualized as the US dollar and its miracle-based home economy, but inside Europe.

The global economic and geopolitical scene seems totally unrelated to the internal dynamics of the two struggling, unprepared and unfinished empires of the USA and the regional bloc of Europe, facing two other unfinished but powerful new rivals, China and India. The new Asian rivals could be imagined as able to take the reins of global hegemony, to some observers, but the old, new and would-be Imperiums have plenty in common. This especially includes their exposure to sharp breaks and discontinuities from previously predictable or fixed trends, radical change of their roles, and un-miraculous change of the types and weights of factors ensuring that no balanced global economic and geopolitical power system is possible, anytime soon.
 
SLOW CHANGE, FAST CHANGE
Some change is cumulative and attains or creates tipping points, but other change is stepwise and supposedly unpredictable, placing it in the Nostradamus category - before it happens - and the Official Wisdom category, after it happens. Also called a paradigm changer, sudden stepwise change is hard to apply to the supposed arrival of the Chinese-Indian global economic empire, but events like the Fukushima nuclear disaster clearly fit this category. The "safe nuclear" fantasy, despite Chernobyl, suddenly lost all credibility and imploded - mainly because the event was totally disastrous and happened under 24/7 media scrutiny in rich and overpopulated Japan. More important, the disaster mix contained plenty of cumulative factors, for example the venerable age of the stricken reactors.

The seamless globalized economy and consumer confidence, or desire to go on trying are two other examples of myths and legends unable to resist reality. When exposed to a sudden break in the reality web supporting them, they can implode overnight. Greece again provides an example: its economy is now a bond traders' gaming chip, in rapid meltdown but not reflected by the unrealistic, often fake data and statistics coming out of the country. In a way, the Greek economy is now semi-virtual/semi-real, able to go almost anywhere, mostly down. Since the start of 2011 however, Greece is an awful long way from being an isolated example that would prove some fond-imagined rule of the global economy muddling through and muddling along despite all challenges, risks and threats. To date and due to the Arab revolt, we can strike at least another 5 countries off the list of "real economy" players. They are now, or will be in convalescence, needing aid and hoping for recovery, but the outlook for full recovery has to be unsure and reserved. They could easily re-plunge into social and political strife, as is perfectly possible for countries like Greece, Ireland, Spain or others. The timeframe for any hypothetical recovery is unknown: tune in later.

More surely and much faster, the recovery method and process as applied to hyper-debt states in Europe, and by the USA on itself is dysfunctional. In older times it was called kill-or-cure horse medecine where recovery had to be miraculous, because it was so unexpected. The change paradigm therefore ratchets up by a notch: fake recovery and real damage to the economy stack up the probability of so-called surprise change, chipping out another cog from the global economy drive train. When enough of them are gone, the global economy is gone - and we will notice its absence.

THE BLACK STORM
We could jokingly say that during a Mayan-type Black Storm we wont notice the Black Swans taking off or landing in large numbers. Tail-end and supposedly low probability events, like the sudden "disappearance" of whole countries chipped out from the global economy web, have become commonplace in a new, and altered reality. Unaware that we adjusted to it, we now take it as normal: "If its Wednesday, that must be Syria which bombs down and out of the world economy, today".

Tomorrow could easily bring us another candidate. Not knowing is only a hairbreadth from not caring - or being able to do anything about it. This Black Storm process prepares a shift from cumulative, supposedly manageable change pressing up against tipping points and thresholds - to the stepwise overnight change paradigm. Whole blocs or groups of countries, or industries and activities could disappear or experience strange and unexpected mutation.

This is a vortex model, where apparent change is circular and cyclical: we always seem to come back to somewhere that looks like where we started - but is not. Possibly Libya could soon have a new semi-tyrannical military-type junta, similar to Algeria for example, that would at least keep pumping oil. Inch'allah. But the new Libyan power elite would surely not enjoy a 42-year grace period before meeting internal opposition. Its capital stock of confidence would start low, and erode fast. The start point, this time of around, would be different.

Only an entirely new social-political model can work.

In fact the same applies everywhere, but change only triggers when economic stress and social duress is intense enough. This may or might happen in Europe, this summer, or later this year. Reversing the paradigm, the likelihood of the Muddle Through model hanging on is low: the conventional or classic economy inside the globalized economy with supply chains snaking all round the planet - we can call this the Black Snake model - was an unusual, even strange and nightmarish default model. Running on luck or chance and outright social exploitation, and dependent on extremely massive resource throughflows, its life expectancy is very low.

By Andrew McKillop

Contact: xtran9@gmail.com

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2011 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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