Tuesday, January 6, 2009

US will emerge as undisputed top dog in 2009

We last linked to Ambrose Evans-Pritchard in "Metal prices fall further than during Great Depression" with the comment:
A visit from our terminally depressed pal*, Ambrose Evans-Pritchard.
naked capitalism tips us to today's story by saying:
Ambrose Evans-Pritchard, Telegraph. For him, this is almost cheerful. But his optimism for the US rests in part on his conviction that the euro "will die a slow death."
From The Telegraph:

Interest rates near zero across the G10 bloc will prevent a replay of the Great Depression, but they will not pull us quickly out of the doldrums, writes Ambrose Evans-Pritchard, in a semi-serious look at 2009.

Central banks will do whatever it takes to combat debt deflation. Even Frankfurt will join the rush to print money, buying every form of debt from mortgages to corporate bonds.

The Fed will follow the Bank of Japan in propping up stock markets. Puritans will grumble, but the surprise will be how it long takes for this stimulus to gain traction. We will learn the term "pushing on a string".

Western societies will feel the first shivers of raw fear as people twig that the authorities are not in control. Iceland's winter will set an awful example. Job losses will reach 1m a month in the US at the point of peak pain. Economists know this is a late-cycle effect – darkest before dawn – but the public will see it otherwise. This will be the phase that shakes society.

The geopolitical landscape will look different. Cohesive states with a rule of law and old democracies – the Anglosphere, Holland, France, Scandies – will muddle through. They will start to enjoy a political premium in investor psychology, despite horrendous debts.

Obama's America will shine. The country will reemerge as undisputed top dog, the only one with real demographic, scientific, and strategic depth. As first into the crisis, it will be the first to hit bottom. Those expecting the dollar to collapse will have to wait.

The damage to core Europe will take longer, but run deeper. Belgium will face a break-up scare. Markets will test highdebt states as they try to roll over bonds – €200bn (£191bn) for Italy and €40bn for Greece. Spain's corporate debts will turn bad.

Germany's economy will contract by 3pc as exports collapse, and the delayed effects of the strong euro and tight money feed through. Angela Merkel's (pictured below) Left-Right coalition will be haunted by its failure to tackle the crisis earlier. The neo-Marxist Linke party and the hard-Right will muscle in. The country will start to look ungovernable. This will at least divert attention from the Club Med mess, making a North-South split in the eurozone less likely. After sterling's sudden death, the euro will face slow death. The pair will refind their accustomed level....MORE

*Some prior A.E-P. articles (sometimes our headlines, sometimes his):

Oct. 28, '08
Phase III (or is it IV?): Europe on the brink of currency crisis meltdown

July 16, '08
U.S. Faces Global Funding Crisis: Merrill Lynch

July 7, '08
Oil Price Shock Means China at Risk of Blowing Up

June 27, '08
Barclays warns of a financial storm as Federal Reserve's credibility crumbles

June 18, '08
Royal Bank of Scotland: Global Stock and Credit Crash Alert