I am not a doomsayer. But, I have kept cribbing, since 2004, about the ill-effects of lop-sided economic development. Just three weeks before the world started talking about another recession, I published a note expressing fears of not just another recession but of an economic apocalypse. Several parts of what I said have already come true, howmuchsoever I might want myself to be proved wrong. And, my own observations scare the s*** out of me.
The economic collapse of 2008 was brought about by large corporations defaulting on their payments and fulfillment of their obligations. Now, in 2011-12, what stares us in our face is payment defaults by governments. And, I am not talking about the US, which is only building up a much larger apocalypse that can occur in 2015. Or, may be, even earlier.
The 2008 effect was a result of corporate greed and mismanagement. The 2011-12 effect will be a result of government greed and mismanagement.
As expected, the US raised its debt limit, will print more bonds, raise debt further, with no corresponding cut in expenses or rise in income. Expenses won’t reduce because the health/social security expenses can only keep mounting. Income won’t rise because there aren’t enough jobs, jobs pay lesser salaries and corporate profits too are down. Government will dare not raise taxes to raise income. The US will continue with its stupid military imperialism programme around the world to essentially capture other nations’ economies (like in Afghanistan or in Iraq). The benefits of such imperliasm goes to corporates who keep their profits in tax heavens and the government gets little returns from its investment in wars. The US debt will continue to rise, with the Democrats and Republicans approving every single instance/opportunity to do so. If the government spends less, they too earn less, as salaries or as kickbacks.
The closer and imminent danger lies in Europe – Greece, Ireland, Portugal, Spain and, now, Italy. All reports tell the same story – Government facing the threat of payment default. Greece was once bailed out. It was bailed out again. How long can this continue when these economies are not growing? Germany and France have their own economic imperialism agenda within Europe. Portugal PM has put up a brave front saying we will go down, but will not compromise with our sovereignty. Sign of times to come?
If one country in Europe defaults, it will have a cascading effect.
If the collapse of one Lehman Brothers in 2008 could cause so much pain, one can imagine the pain that is waiting to spread after one government defaults now.
And, though the US will survive the current tension, it’s debt-driven economy will hit a road-block. Whenever the US defaults, the dollar value will crash. And, with it, the entire world’s economy.
Advice: Stay invested in assets, and not in paper.
(My wife reminded of this song: Jisey maut aayi sukun mil gaya…. meaning, Blissful are those who have died) 😀
Author : Bhupesh Trivedi
Bhupesh is the CEO of a publishing consultancy and services company Chronosphere as well as publisher of 16 B2B online news and community networking websites under the umbrella brand of IndianBusinessObserver.com.