Will the world experience a new economic crisis that will be even more serious that the one that we have just been through or enter a period of sustained economic growth?

It is now becoming clear that the Anglo-Saxon and some European nations have not recovered from the recent economic crisis as was expected a year ago, and will slide back into a double-dip recession.   What has gone wrong? Why has not the economic stimulus packages worked?  Many economists had expected that by now that the USA would be in economic recovery, not facing high unemployment and a faltering economy.  Now, out of desperation the USA and UK are planning to print even more money in an effort to revive their faltering economies.

Meanwhile many other economies have recovered strongly from the recent recession.  In Europe the Germany economy is recovering strongly, as have most of the Asian economies.  Why have the Anglo-Saxon and some European nations not been able to do likewise?

The reasons are simple.  It does not require an economist with a PhD to figure out that if a country spends more than it earns year after year, eventually they will be in trouble.  While often economists disagree with one another on the causes and solutions, the fundamental problem why the English speaking nations are in the mess they are today is because for years they have lived beyond their means on borrowed money.  Sadly, nothing has been done to correct this, which was the cause of the recent recession; rather the current economic policies of the Anglo-Saxon nations are only made the situation worse.

The reasons for the economic crisis were:

1. Large trade deficits – the Anglo-Saxon nations have been importing far more than they export.

2. To finance their imports they have borrowed money from creditor nations with trade surpluses, which they now need to repay along with the interest.

3. Much of the GNP growth up to 2007 in these nations was in consummation of imported goods, housing and the service sector, while manufacturing declined.

4. The cost of servicing this debt has escalated while government revenues have declined.

5. Over generous welfare programs which have drained financial resources from the productive sectors of the economy.

6. A break-down on the moral fabric of society and poor work ethics

7. Costly wars and expensive defense budgets.

In an effort to revive their economies from the recession governments have operated large deficits by creating stimulus packages with borrowed and printed money.  They have continued to borrow off their creditor nations, increasing their international debt which is making long-term recovery even more difficult.

The UK and some European Governments have recently slashed Government expenditure, acknowledging they can no continue to borrow to finance their deficits.  The UK is now insolvent, struggling to pay the interest on their enormous national debt, while still incurring further debt.  The cut-backs have been so drastic that the UK economy will remain economically depressed for years.

Rather than accept responsibility for the financial mess many countries are now in, politicians have blamed bankers and speculators, instead of admitting it was their own fiscal policies that created the crisis in the first place.  Bankers make their money by lending – if loose monetary policies create too much money in circulation then bankers will find new customers to lend money – the result being the prime-housing bubble and banking crisis.  Existing loose monetary policies have continued, putting more fuel on the flames, with this time the governments themselves taking the risk, not the bankers.

Governments are like any business or household – if they spend more than earn they will eventually face bankruptcy. We now have a situation where some governments face the prospect of not being able to repay their debts, much in the same way many corporations failed during the recent recession.  To add to their woes, to prop up the failing banking systems, governments have printed money to either lend to these insolvent institutions, invested in them, or have provided loan guarantees.  As the US and UK economy continues to weaken, many of the institutions that their governments have propped up will fail, dragging down the governments themselves.

The next economic crisis will be bought about when nations default on their loans, rather than a banking crisis as was bought about with the last crisis..  Governments around the world have recklessly borrowed excessively to prop up their collapsing financial institutions; transferring much of the debt from these failed institutions to governments own balance sheets.  While some of this debt has been financed by printing money, a considerable amount has also been financed through borrowing on international money markets.  Governments around the world now owe over 57 trillion dollars in debt, not including local government and pension debt.  Managing this debt will soon become unsustainable – governments will simply not have the money to repay the interest let alone repaying the loans.  There will be a chain-reaction of sovereign bankruptcy.

Many nations outside the Eurozone have resorted to printing money to inflate their economies, injecting funds into propping up their banking systems and spending on infrastructure projects.  The USA, Japan and the UK have been among the countries less able to afford such increased spending because of the level of their national debt, but other nations have also resorted to the same practice, including India and China.  The consequence of this global printing of money will result in debasing the value of most currencies – we are already seeing a flight to gold by canny investors.

Already in Europe Portugal, Greece, Spain and Ireland their Governments face the possibility of defaulting.  Other EU countries are being forced to live within their incomes, creating depressed domestic economic conditions. The Eurozone countries have not been able to print money and have had to slash government expenditure in an effort to balance their budgets.  Such dramatic cut-backs in government expenditure has resulted in the contraction in their economies, rising unemployment, and the growing danger of political instability.

What will now unfold?

Many may not realise that the world is now awash with money.   The increase in the money supply as a part of the economic stimulus package has resulted a weakening of the US dollar and now threatening to destabilize global trade. Other nations are now printing money to buy dollars in an attempt to prevent their currencies rising against the dollar.  Eventually this will fail as printing money will not help in achieving sustainable economic growth, and will only cause a lack of confidence in the value of currencies, leading to inflation and financial collapse.  Those nations that have linked their currencies to the dollar, especially the Asian currencies, will see the dollar reserves wiped out, and massive devaluation of their own currencies.  This will create a new global economic crisis, much worse than what was experienced in 2008.

The collapse of the US dollar will bring on a period of considerable political of social unrest around the world, with many governments collapsing. With the collapse of government there will be wide-spread political unrest, as people demand a return to prosperity, even if it means giving up individual freedoms.  People will look for a strong leader who can restore world peace and prosperity.  Already in Western Europe civil unrest is spreading, as their populations refuse to accept the reforms required to enable countries to restore their economies.

The reshaping of Europe.

The European Central Bank which has adopted a more conservative fiscal policy than other Central Banks, as a part of their mandate to maintain a stable Euro; requiring its member states in the Eurozone to live within their incomes.  This will eventually see the Euro replace the US dollar as the world’s reserve currency, because of sounder fiscal policies.  It is also being dominated by Germany, leading the Eurozone becoming the dominant monetary power to restore a new world economic order.

The EU now consists of one group of European nations showing strong economic growth under-pinned by a re-emergent German economy, and another other group weighed down with debt, experiencing economic stagnation.   There is a growing unwillingness by those Eurozone countries that have recovered from the economic crisis to continue supporting those nations struggling with unsustainable debt levels.  Rather than the wealthier nations continuing to prop up those EU nations facing insolvency, the Eurozone is expected to restructure, with the German-led coalition dictating the monetary and political policies for the Eurozone, something that will be difficult under the existing structure. Those nations that cannot get their economies back into balance could be either forced out of the Eurozone, or have their economies controlled by the ECB or similar body, in return to being bailed out.

There has been a shift of power in the EU towards Germany, which is the largest and strongest growing economy (3.5% growth) and the leading exporter.  The German economy has gone through several years of economic readjustment to where it is now one of the most competitive in the world, is the world’s second largest exporter, and has benefited from adopting more conservative fiscal policies than other nations.  Germany is experiencing a growing self-confidence and becoming much more assertive in reshaping Europe into a cohesive political and economic union.  With the support of France, Germany is pushing for further amendments to the EU constitution to bring this about a more cohesive European Union

Ireland, Spain, Portugal and Greece are being forced to restructure their economies in effort to recover.  One option is to leave the Eurozone to allow their currencies to devalue and make the adjustments to their economies to enable them to recover.  Other heavily indebted Eurozone nations such as Italy, Netherlands and even France could be threatened with expulsion unless they can get their budget deficits in order.

Even those Eurozone countries that have recovering economies have large national debts, which they need to reduce.  They are not in a position or willing to support those Eurozone member countries facing insolvency.

Meanwhile a number of the EU countries outside the Eurozone are being forced to make painful adjustments to their economies.  In particular the UK and the Eastern European nations (with the exception of Poland) have to learn to live with falling taxation revenue, high unemployment, and stagnant economic growth. The UK is unlikely to recover.

However it will not be till the collapse of the US dollar that the world will be thrown into the next economic crisis that will force the reshaping of the reshaping of a new economic and political landscape of the world.  The dollar is expected to weaken significantly next year as the increase in the US money supply will stimulate consumer spending, creating inflationary pressures and widen the current account deficit.  This will trigger off another global economic crisis.

A new economic order will replace the failed Anglo-Saxon capitalistic model.  A German-dominated Europe will install a new economic order upon the world, with the Euro becoming the world’s only reserve currency.  It is only from such crises will the Europeans be willing to accept a strong leader and provide the political support for such a leader to impose unity and reforms upon a politically fragmented EU.

This new global economic order under a German-led EU will impose upon the world reforms to create a new regulated world economy to manage international trade, enforce social, environmental and religious standards upon the world under the pretense of maintaining world peace, protecting the environment, and maintaining prosperity.  Many individual freedoms will be suppressed for the sake of the State in bringing about a new world order.  Germany will be the one nation that can lead the world to economic recovery, but will only do so on its terms.

Meanwhile the Anglo-Saxon nations will be forced to repay their debts, their assets sold off, and their people forced to live in poverty.  There will be little sympathy for the plight of the bankrupt English-speaking world from their creditors, who will have lost much of their wealth because of Anglo-Saxon extravagance. The people of the UK, USA, Canada, Australia and New Zealand will be enslaved to their creditor nations, and will enter a time of great suffering and hardship.

History is unfolding right before our eyes, as a new economic order is forced upon the world to replace the old failed model.  It will be a regulated system in an attempt to avoid the distortions in the market that has happened over the last few years.  While this new economic system will bring in a period of global prosperity for a short time, it will also fail.  It will only be when a new world government is installed upon the earth based on the Law of God, under the rulership of Jesus Christ, that the world will experience peace and prosperity.

Bruce Porteous

31 October, 2010


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